China Telecom 20-F2019 FY Annual report (foreign)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM20-F

OR

For the fiscal year ended December 31, 2019

OR

OR

Date of event requiring this shell company report

For the transition period from              to             

Commission file number1-31517

中国电信股份有限公司

(Exact Name of Registrant as Specified in Its Charter)

China Telecom Corporation Limited

(Translation of Registrant’s Name into English)

People’s Republic of China

(Jurisdiction of Incorporation or Organization)

31 Jinrong Street, Xicheng District

Beijing, People’s Republic of China 100033

(Address of Principal Executive Offices)

Ms. Wong Yuk Har, Rebecca

China Telecom Corporation Limited

28/F, Everbright Centre

108 Gloucester Road

Wanchai, Hong Kong

Email:rebecca.wong@chinatelecom-h.com

Telephone: (+852) 2582 5819

Fax: (+852) 2157 0010

(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

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.

As of December 31, 2019, 67,054,958,321 domestic shares and 13,877,410,000 H shares, par value RMB1.00 per share, were issued and outstanding. H shares are ordinary shares of the Company listed on The Stock Exchange of Hong Kong Limited.

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 every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large Accelerated Filer  ☒    AcceleratedFiler  ☐    Non-Accelerated Filer  ☐    Emerging Growth Company ☐

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.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

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 International Accounting Standards Board  ☒

Other  ☐

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 Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

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  ☐

CHINA TELECOM CORPORATION LIMITED

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This annual report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are, by their nature, subject to significant risks and uncertainties, and include, without limitation, statements relating to:

The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “will,” “would” and similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. We are under no obligation to update these forward-looking statements and do not intend to do so. Actual results may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the following:

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Please also see “Item 3. Key Information—D. Risk Factors”.

CERTAIN DEFINITIONS AND CONVENTIONS

As used in this annual report, references to “us,” “we,” the “Company,” “our Company” and “China Telecom” are to China Telecom Corporation Limited and its consolidated subsidiaries except where we make clear that the term means China Telecom Corporation Limited or a particular subsidiary or business group only. References to matters relating to our H shares or American depositary shares, or ADSs, or matters of corporate governance are to the H shares, ADSs and corporate governance of China Telecom Corporation Limited. All references to “China Telecom Group” are to China Telecommunications Corporation, our controlling shareholder. Unless the context otherwise requires, these references include all of its subsidiaries, including us and our subsidiaries. Unless otherwise indicated, references to and statements regarding China and the PRC in this annual report do not apply to Hong Kong Special Administrative Region, Macau Special Administrative Region or Taiwan.

PART I

Not applicable.

Not applicable.

The following table presents our selected financial data. The selected consolidated statements of financial position data as of December 31, 2018 and 2019, and the selected consolidated statements of comprehensive income (except for earnings per ADS) and consolidated cash flow data for the years ended December 31, 2017, 2018 and 2019, are derived from our audited consolidated financial statements included elsewhere in this annual report, and should be read in conjunction with those consolidated financial statements. The selected consolidated statements of financial position data as of December 31, 2015, 2016 and 2017 and the selected consolidated statements of comprehensive income (except for earnings per ADS) and consolidated cash flow data for the years ended December 31, 2015 and 2016 are derived from our consolidated financial statements which are not included in this annual report. Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.

The selected financial data reflected the tower assets disposal in 2015, the disposal of ChengduE-store Technology Co., Ltd., orE-store, the establishment of Tianyi Capital Holding Co., Ltd., or Tianyi Capital, and the acquisitions of the satellite communications business and Shaanxi Zhonghe Hengtai Insurance Agent Limited, or Orange Insurance (previously known as Zhonghe Hengtai) in 2017, the establishment of China Telecom Leasing Corporation Limited in 2018, and the establishments of China Telecom Group Finance Co., Ltd., or China Telecom Finance,E-surfing Smart Home Technology Co., Ltd., or Smart Home Company, andE-surfing Internet of Things Technology Co., Ltd., or IoT Company, in 2019, described under “Item 4. Information on the Company—A. History and Development of the Company—Establishment of the Tower Company and the Disposal and Lease of the Telecommunications Towers”, “—Disposal ofE-store and Establishment of Tianyi Capital”, “—Establishment of China Telecom Leasing Corporation Limited”, “—Establishment of China Telecom Group Finance Co., Ltd.”, “—Establishment ofE-surfing Smart Home Technology Co., Ltd.” and “—Establishment ofE-surfing Internet of Things Technology Co., Ltd.” and “Item 5. Operating and Financial Review and Prospects”.

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Pursuant to the shareholders’ approval at the annual general meeting held on May 29, 2019, a final dividend of RMB8,891 million (RMB0.109851 per share equivalent to HK$0.125 per share,pre-tax) for the year ended December 31, 2018 was declared, all of which has been fully paid. Pursuant to a resolution passed at the Directors’ meeting on March 24, 2020, a final dividend of approximately RMB9,126 million (RMB0.112764 per share equivalent to HK$0.125 per share,pre-tax) for the year ended December 31, 2019 was proposed for shareholders’ approval at the forthcoming annual general meeting for the year of 2019 expected to be held on May 26, 2020.

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Exchange Rate Information

Our business is primarily conducted in China and substantially all of our revenues are denominated in Renminbi. We present our historical consolidated financial statements in Renminbi. In addition, solely for the convenience of the reader, this annual report contains translations of certain Renminbi and Hong Kong dollar amounts into U.S. dollars at specific rates. For any date and period, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise indicated, conversions of Renminbi or Hong Kong dollars into U.S. dollars in this annual report are based on the exchange rate on December 31, 2019 (RMB6.9618 to US$1.00 and HK$7.7894 to US$1.00). We make no representation that any Renminbi or Hong Kong dollar amounts could have been, or could be, converted into U.S. dollars or vice versa, as the case may be, at any particular rate, or at all. For a detailed explanation of the risk of currency rate fluctuations, please see “D. Risk Factors—Risks Relating to the People’s Republic of China—Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows” under this Item. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange. Examples of such government regulations and restrictions are set forth in “D. Risk Factors—Risks Relating to the People’s Republic of China—Government restriction on currency conversion may adversely affect our financial condition” under this Item.

Not applicable.

Not applicable.

Risks Relating to Our Business

We face increasing competition, which may materially and adversely affect our business, financial condition and results of operations.

We operate in a highly competitive industry, and primarily compete against the other two full-service telecommunications providers in the PRC, namely, China Mobile Limited, or China Mobile, and China Unicom (Hong Kong) Limited, or China Unicom.

In mobile telecommunications services, China Mobile and China Unicom are our top two competitors. As of April 2020, each of China Unicom, China Mobile and us provides 4G services nationwide and has officially launched 5G commercial services in the PRC. In June 2019, China Broadcasting Network Corporation Ltd, or China Broadcasting Network, was granted the 5G permit by the MIIT. While we strive to provide competitive services to meet our subscribers’ evolving needs, we cannot assure you that: (i) our mobile telecommunications services will deliver the quality and levels of services currently anticipated; (ii) we will be able to provide all planned services or we will be able to provide such services on schedule; (iii) there will be sufficient demand for our mobile telecommunications services for us to deliver such services profitably; (iv) our competitors’ services will not be more popular among potential subscribers; or (v) we will not encounter unexpected technological difficulties in developing 5G and future generations of mobile services. The failure of any of these possible developments to occur could impede our growth, which might have a material adverse effect on our business, financial condition and results of operations.

In fixed-line telecommunications services, we compete against China Unicom, China Mobile, CITIC NETWORKS Co., Ltd. and China Broadcasting Network. The entry of China Broadcasting Network into the fixed-line telecommunication market in May 2016 has intensified the competition in this sector, which might have a material adverse effect on our business.

We also face increasing competition from other competitors outside the telecommunications industry, in particular, from Internet services providers and mobile software and application developers, such asOver-the-Top messaging or voice services providers who offer contents and services on the Internet without their proprietary telecommunications network infrastructure. These competitors are competing with us in information and application or voice services. During the past few years, some of our traditional revenue streams, such as our voice services or short message services, or SMS have experienced negative growth, primarily due to the alternative means of communication offered byOver-the-Top messaging becoming increasingly popular among the subscribers. Though the increasing popularity ofOver-the-Top messaging has generally contributed to the increase in our Internet data traffic and Internet services revenues, we cannot assure you that our Internet data traffic and Internet services revenue will continue to increase in the future or such increase could fully offset the negative effect of theseOver-the-Top services on our voice services or SMS. In addition, we expect that competition from competitors outside the telecommunications industry will intensify and the strategic cooperation between these competitors and telecommunications operators may reshape the competitive landscape of the telecommunications industry in which we operate. Though we strive to maintain our competitiveness through our comprehensive transformation and upgrades strategy, we may encounter difficulties and challenges in addressing changing consumer needs and responding to the evolving competitive landscape.

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In addition, the PRC government has taken various initiatives to encourage competition in the telecommunications industry, such as the policy encouraging private capital to enter the industry. For a series of government measures to encourage private capital to invest in telecommunications services that could compete with our services, see “Item 4. Information on the Company—B. Business Overview—Competition”. Furthermore, the PRC government had started mobile number portability pilot programs in certain municipalities and provinces. On November 11, 2019, the MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Printing and Publishing the Regulations on the Management of Mobile Number Portability Service. The Regulations on the Management of Mobile Number Portability Service became effective on December 1, 2019. By the end of November 2019, the mobile number portability services have been implemented nationwide. As a result, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition.

Increasing competition from other existing telecommunications services providers, including China Mobile and China Unicom, as well as competition from new competitors, could materially and adversely affect our business and prospect by, among other factors, forcing us to lower our tariffs, reducing or reversing the growth of our customer base and reducing usage of our services. Any of these developments could materially and adversely affect our revenues and profitability. We cannot assure you that the increasingly competitive environment and any change in the competitive landscape of the telecommunications industry in the PRC would not have a material adverse effect on our business, financial condition or results of operations.

We face uncertainties in the development and operation of our 5G business, and if we fail to address such uncertainties, our business, prospects and results of operations may be materially and adversely affected.

In June 2019, the MIIT granted the 5G permit to China Telecom Group, China Mobile Communications Group Co., Ltd. (formerly known as China Mobile Communications Corporation) (“China Mobile Group”), China United Network Communications Group Company Limited (formerly known as China United Telecommunications Corporation) (“Unicom Group”) and China Broadcasting Network. The MIIT has allocated the 3400-3500MHz frequency bands to China Telecom Group, the 2515MHz-2675MHz and 4800MHz-4900MHz frequency bands to China Mobile Group, the 3500-3600MHz frequency bands to Unicom Group, respectively, for nationwide 5G programs, and the 4900MHz-5000MHz to China Broadcasting Network for 5G trials. In February 2020, the MIIT approved China Telecom Group, Unicom Group and China Broadcasting Network to share the 3300-3400MHz spectrum to build indoor 5G. In March 2020, the MIIT repurposed the use plan for 700MHz frequency bands to mobile communications. We have been authorized by China Telecom Group to develop 5G business nationwide.

In September 2019, in order to build a 5G network on an efficient basis and to rapidly create our 5G service capabilities, we entered into a 5G NetworkCo-Build andCo-Share Framework Cooperation Agreement with China United Network Communications Corporation Limited (“CUCL”) (the “5G Cooperation Agreement”). For more details, see “Item 4. Information on the Company—B. Business Overview—NetworkSystem—Co-building andco-sharing of 5G network with China Unicom”. Pursuant to the 5G Cooperation Agreement, both parties will delineate and designate districts, jointlyco-build one 5G access network nationwide. We will rely on China Unicom’s network to provide our 5G services in the regions for which they are responsible. If the 5G networkco-building andco-sharing construction progress falls behind the mutually agreed plan or our subscribers are unsatisfied with the network quality in such regions and turn to our competitors, our business and results of operations might be adversely impacted.

With the gradual maturity of conditions for 5G commercialization, on October 31, 2019, we officially launched 5G commercial services in 50 cities nationwide based on market-oriented judgment, and created a membership-based innovative service model of “5G + Privileges + Applications” for individuals and 5G service combining “5G + Gigabit Broadband + Smart Family Applications” for households. As of March 31, 2020, the number of 5G package subscribers was approximately 16.6 million. For more details of our 5G operations, see “Item 4. Information on the Company—B. Business Overview”.

The network deployment, construction of infrastructure and commercialization of 5G require us to devote significant financial resources and operational efforts, and we have been exploring optimal business models for our 5G business. However, there are significant uncertainties in the prospects of 5G developments and operations, including the competitiveness of 5G products and services, supplies and pricing of 5G terminals, the development of 5G Standalone, or 5G SA industry chain, capital expenditures in constructing 5G base stations, our suppliers’ ability to provide 5G equipment as well as future 5G technology application scenarios. If we are unable to appropriately address such uncertainties, it may adversely impact future benefits of our 5G business, which may materially and adversely affect our business, prospects and results of operations.

Our operations and further development of our mobile business is dependent on the Tower Company.

In July 2014, the Company, CUCL and China Mobile Communication Company Limited (“CMCL”) made the decision to jointly establish China Communications Facilities Services Corporation Limited (currently known as China Tower Corporation Limited, the “Tower Company”), and carried out the establishment of Tower Company and the transfer of certain tower assets. Upon completion of the transfer of tower assets by the Company to the Tower Company, the Company and the Tower Company entered into the Lease Agreement on July 8, 2016 that sets forth the pricing and related arrangements in relation to the lease of telecommunications towers and related assets (including both acquired towers and new towers). On February 1, 2018, the Company and the Tower Company entered into a supplemental agreement, effective from January 1, 2018, on the basis of the original Lease Agreement mainly to adjust the relevant pricing arrangement of tower products under the Lease Agreement. See “Item 4. Information on the Company—A. History and Development of the Company—Establishment of the Tower Company and the Disposal and Lease of the Telecommunications Towers”.

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The Tower Company has been and will continue to be of significant importance to the operations and further development of our mobile business and our results of operations. Construction of new tower assets has been carried out by the Tower Company since the completion of the transfer of tower assets and, in principle, we expect the Tower Company will continue to carry out the construction of new tower assets in the future. Therefore, our mobile business has depended on and will continue to depend on the lease arrangement between us and the Tower Company. However, since we do not control the Tower Company, we cannot assure you that it will act in the best interests of us or the services of the Tower Company can sufficiently support our business needs and future plans.

The Lease Agreement, as may be further supplemented and amended from time to time, provides for pricing adjustment mechanism under which the fees may be further negotiated or agreed upon after considering effects of inflation, significant fluctuations in the real estate market or the steel price, many of which are beyond our control, and such pricing adjustment mechanism may result in a further adjustment of the fees charged to us by the Tower Company in the future. Furthermore, prior to the expiration of lease periods of individual towers, we have to negotiate with the Tower Company new leases of such tower, we cannot assure you that we will be able to enter into new leases at all or on favorable terms with the Tower Company. Due to our reliance on Tower Company for tower assets, if we fail to use the relevant tower assets at our desired locations and on terms and conditions that are favorable to us to maintain or expand our mobile network coverage, or if we cannot receive quality and stable services in a timely and economically viable manner from the Tower Company, the operations and further growth of our mobile business as well as our financial condition and results of operations may be materially and adversely affected.

We will continue to be controlled by China Telecom Group, which could cause us to take actions that may conflict with the best interests of our other shareholders.

China Telecom Group, a state-owned enterprise owned approximately 70.89% of our outstanding shares as of April 23, 2020. Accordingly, subject to our Articles of Association and applicable laws and regulations, China Telecom Group, as our controlling shareholder, will continue to be able to exercise significant influence over our management and policies by:

The interests of China Telecom Group as our controlling shareholder could conflict with our interests or the interests of our other shareholders. As a result, China Telecom Group may take actions with respect to our business that may not be in our or our other shareholders’ best interests.

We depend on China Telecom Group and its other subsidiaries to provide certain services and facilities for which we currently have limited alternative sources of supply.

In addition to being our controlling shareholder, China Telecom Group, by itself and through its other subsidiaries, also provides us with services and facilities necessary for our business activities, including, but not limited to:

The interests of China Telecom Group and its other subsidiaries as providers of these services and facilities may conflict with our interests. We currently have limited alternative sources of supply for these services and facilities. Therefore, we have limited leverage in negotiating with China Telecom Group and its other subsidiaries over the terms for the provision of these services and facilities. Termination or adverse changes of the terms for the provisions of these services and facilities could materially and adversely affect our business, results of operations and financial condition. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for a description of the services and facilities provided by China Telecom Group and its other subsidiaries.

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Since our services require interconnection with networks of other operators, disruption in interconnections with those networks could have a material adverse effect on our business and results of operations.

Under the relevant telecommunications regulations, telecommunications operators are required to interconnect with networks of other operators. China Telecom Group entered into interconnection settlement agreements with other telecommunications operators, including Unicom Group and China Mobile Group. We entered into an interconnection settlement agreement, as amended, with China Telecom Group, which allows our networks to interconnect with China Telecom Group’s networks as well as networks of the other telecommunications operators, with whom China Telecom Group had interconnection arrangements. The effective provision of our voice, Internet and other services requires interconnection between our networks and those of China Telecom Group, Unicom Group, China Mobile Group and other domestic, international and Hong Kong, Macau and Taiwan telecommunications operators. Any interruption in our interconnection with the networks of those domestic, international or Hong Kong, Macau and Taiwan telecommunications carriers with which we interconnect due to technical or competitive reasons may affect our operations, service quality and customer satisfaction, and, in turn, our business and results of operations. In addition, any obstacles in existing interconnection arrangements and leased line agreements or any change in their terms, as a result of natural events, accidents, or for regulatory, technological, competitive or other reasons, could lead to temporary service disruptions and increased costs that may seriously jeopardize our operations and adversely affect our profitability and growth.

We may be unable to obtain sufficient financing to fund our capital requirements, which could limit our growth potential and prospects.

We believe that cash from operations, together with any necessary borrowings, will provide sufficient financial resources to meet our projected capital and other expenditure requirements. However, we may require additional funds to the extent we have underestimated our capital requirements or overestimated our future cash from operations. In addition, a significant feature of our business strategy is to transform our Company into a leading integrated intelligent information services provider, which may require additional capital resources. The cost of implementing new technologies, upgrading our networks, expanding capacity or acquisitions of businesses or assets may be significant. Furthermore, in order for us to effectively respond to technological changes and more intensive competition, we may need to make substantial investments in the future.

Financing may not be available to us on acceptable terms or at all. In addition, any future issuance of equity securities, including securities convertible or exchangeable into or that represent the right to receive equity securities, may require approval from the relevant government authorities. Our ability to obtain additional financing will depend on a number of factors, including:

We cannot assure you that we can obtain sufficient financing at commercially reasonable terms or at all. If adequate capital is not available on commercially reasonable terms, our growth potential and prospects could be materially and adversely affected. Furthermore, additional issuances of equity securities will result in dilution to our shareholders. Incurrence of debt would result in increased interest expense and could require us to agree to restrictive operating and financial covenants.

If we are not able to respond successfully and cost-efficiently to technological or industry developments, our business may be materially and adversely affected.

The telecommunications market is characterized by rapid advancements in technology, evolving industry standards and changes in customer needs. We cannot assure you that we will be successful in responding to these developments. In addition, new services or technologies, such as cloud computing, Internet of Things, artificial intelligence and blockchain, present new challenges to our existing services and technologies. In the event we do take measures to respond to technological developments and changes in industry standards, the integration of new technology or industry standards or the upgrading of our networks may require substantial time, effort and capital investment. Moreover, the successful deployment and application of such cutting edge technologies depend on a number of factors, including the integration of legacy networks and cloud security related challenges. We cannot assure you that we will succeed in integrating these new technologies and industry standards or adapting our network and systems in a timely and cost-effective manner, or at all. Our inability to respond successfully and cost-efficiently to technological or industry developments may materially and adversely affect our business, results of operations and competitiveness.

Our ability to respond to technological developments in a cost-efficient manner may also be adversely affected by external factors, some of which are beyond our control. For example, the development in 5G technology is expected to have a major impact on our services. See “—We face uncertainties in the development and operation of our 5G business, and if we fail to address such uncertainties, our business, prospects and results of operations may be materially and adversely affected” under this Item. In addition, we have been taking the initiatives to explore the feasibility of collaborative development of 5G and 4G. If our efforts turn out to be unsuccessful, our ability to attract and retain subscribers could be adversely affected.

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Restrictions, sanctions and other legal or regulatory actions in various jurisdictions could adversely affect us, our telecommunications equipment suppliers and other business partners, which could materially and adversely affect our business operations directly and indirectly.

We procure our telecommunications network equipment and related maintenance and technical support from certain PRC and overseas telecommunications equipment suppliers. See “Item 4. Information on the Company—B. Business Overview—Network System”. We also transact with our overseas branches, as well as our business partners who operate globally. Therefore, both we and our business partners are subject to the laws and regulations of various jurisdictions and international organizations, and any restrictions, sanctions or other legal or regulatory actions, such as restrictions on import and export activities, could cause disruptions or other material difficulties on the business activities of our suppliers and us. The relevant jurisdictions or international organizations include, among others, the United States, the European Union (“EU”) and the United Nations. Furthermore, as the supply of our telecommunications equipment relies on a global supply chain, we are vulnerable to significant disruptions in the supply of parts and other items that are necessary for the relevant manufacturing activities.

For example, certain telecommunications equipment manufacturers were added by the Bureau of Industry and Security of the U.S. Department of Commerce to the Entity List in May 2019, which resulted in the imposition of additional licensing requirements on the export,re-export and transfer of goods, services and technology to such manufacturers. While the U.S. Department of Commerce issued a temporary general license partially restoring the said licensing requirements in limited types of transactions and extended the expiration dates of the temporary license for multiple times, there is no guarantee that the U.S. Department of Commerce will further extend the expiration date of the temporary license or fully withdraw the licensing requirements. Such disruptions could prevent those affected manufacturers from delivering equipment and services to us in accordance with the agreed terms of supply, which in turn could negatively affect our business operations. We may not be able to find suitable alternative suppliers for the affected equipment in a timely manner. Even if we are able to find alternative suppliers, the commercial terms may not be comparable, and we could therefore be subject to a higher procuring cost. Furthermore, if any of our suppliers raises their prices due to an increase in international trade tariffs, we could be subject to a higher cost in procuring the relevant products. We may experience a significant delay in implementing the part of our business plans that relies on delivery of the affected network equipment and difficulties in timely improving our services that rely on those suppliers for upgrading our networks and related software and applications. Any of these and other consequences could materially adversely affect our business, results of operations, financial condition and prospect and cause a significant volatility in and a decline in our share price.

Our business may be materially and adversely affected byCOVID-19 pandemic or future health epidemics, pandemics or outbreaks.

The World Health Organization declared the outbreak ofCOVID-19 a pandemic on March 13, 2020.COVID-19 pandemic has caused significant economic and financial impact around the world. At this time, we are not able to estimate the longer-term effects thatCOVID-19 pandemic could have on our business. The extent to which theCOVID-19 pandemic impacts our business, financial condition, results of operations will depend on future developments which are highly uncertain and cannot be predicted, including the specific degree of severity ofCOVID-19 pandemic and the actions taken or to be taken to restrain or resolve its impact. We are continuing to monitor the spread ofCOVID-19 and related risks.

Due to the outbreak ofCOVID-19, the Chinese government implemented domestic temporary control measures from late January 2020 and it has been gradually easing such control measures since March 2020. Despite the Chinese government’s many efforts to revive China’s economy, China’s economy experienced an evident slowdown and will continue to face new difficulties and challenges due to the spread of the pandemic, increasing risk of imported cases and heightened volatility and uncertainties in the global economy.

In addition,COVID-19 pandemic has been rapidly evolving globally and many countries have implemented quarantine, social distancing and other mitigation measures to slow down the spread. The outbreak ofCOVID-19 pandemic has severely impacted global economic activities and caused significant volatility and negative pressure in the financial markets.

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The outbreak ofCOVID-19 pandemic and other adverse public health developments could materially and adversely affect our business, financial condition and results of operations. The adverse impacts likely include disruptions to the demand of certain services and products such as international roaming services and services provided to corporate clients, a decline in network service quality due to the increased volume of online utilization, temporary closures of our sales outlets and a decline in new subscriber registration due to such closures, disruptions to the delivery of services or supplies and delay in network construction progress due to travel and other restrictions, decline in labor force and increased bad debts risk due to the deteriorating financial condition of certain corporate customers. In addition, we have transitioned a subset of our employees to a remote work environment and allowed certain suppliers to remotely provide services in an effort to mitigate the spread ofCOVID-19, which may increase certain costs and risks to our business and operations, including an increased demand for information technology resources.

We may be adversely affected by future health epidemics, pandemics or outbreaks which are beyond our control. These events are impossible to forecast and difficult to mitigate. Any of these events might have a material adverse effect on our results of operations and financial condition. See “—Risks Relating to the People’s Republic of China—The PRC’s economic, political and social conditions, as well as government policies, could affect our business” under this Item.

Cyber security breaches could have a material adverse effect on our operations.

We rely on information technology systems to process, transmit, store, and protect electronic information. As a telecommunications operator, we are considered a critical information infrastructure operator under the relevant PRC law and therefore are subject to the regulations designed to protect critical information infrastructure and therefore may be more likely to be targeted by cyber attack activities. Our information technology systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, cyber attacks, computer viruses, hackers, telecommunications failures, natural disasters, terrorist attacks, and other security issues. We have technology and information security processes and disaster recovery plans in place to mitigate our risks to these vulnerabilities. However, these measures may not be adequate to ensure that our operations will not be disrupted, should such an event occur.

Increasing regulatory focus on personal information protection could impact our business and expose us to increased liability.

Regulators in various jurisdictions are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. Recent regulations, such as the General Data Protection Regulation (“GDPR”), which went into effect in the EU on May 25, 2018, applies to the collection, use, retention, security, processing, and transfer of personally identifiable information of residents of EU countries. The GDPR created a range of new compliance obligations, and imposes significant fines and sanctions for violations. Although we have not been subject to any GDPR sanctions and have subscriber privacy policy in place, it is possible that the GDPR or other emerging regulations may be interpreted or applied in a manner that is adverse to us. Any failure, or perceived failure, by us to comply with any applicable regulatory requirements or orders, including but not limited to privacy, data protection, information security, or consumer protection-related privacy laws and regulations, could result in proceedings or actions against us by governmental entities or individuals, subject us to fines, penalties, and/or judgments, or otherwise adversely affect our business, as our reputation could be negatively impacted.

We face a number of risks relating to our Internet-related services.

We currently provide a range of Internet-related services, includingdial-up and broadband Internet access, and Internet-related applications. We face a number of risks in providing these services.

Our network may be vulnerable to cyber attacks, including, among others, unauthorized access, denial of service and use of malicious software. In addition, cyber attacks may cause equipment failures, loss of information, including confidential or otherwise protected information stored in our customers’ computer systems and mobile phone systems, failure or perceived failure to comply with applicable privacy, security, or data protection laws or regulations, as well as disruptions to our operations or our customers’ operations. We have devoted significant resources to network security, data security and other security measures to protect our systems and data, but we cannot assure you that the security measures we have implemented will not be circumvented or otherwise fail to protect the integrity of our network, including our mobile network. Furthermore, it is difficult to estimate or calculate the economic costs caused by potential cyber security incidents and maintain sufficient insurance coverage relating to them at commercially reasonable rates and terms, as the costs may differ based on the identity and motive of the programmer or hacker, which are often difficult to identify. Thus, the economic costs to us to eliminate or alleviate cyber attacks could be significant. Eliminating computer viruses and other security problems may also require interruptions, delays or suspension of our services, reduce our customer satisfaction and cause us to incur costs. Cyber attacks may also subject us to litigations, liabilities for information loss, breach of confidentiality of private information, and/or reputational damage. While, to date, we have not been subject to cyber attacks which, individually or in the aggregate, have been material to our operations or financial condition, we cannot assure you that we will not experience them in the future. Due to the evolving nature of cyber security threats, the scope and impact of any future incident cannot be predicted. While we continually work to safeguard our systems and mitigate potential risks, there is no assurance that such actions will be sufficient to prevent cyber attacks or security breaches that manipulate or improperly use our systems or networks, compromise confidential or otherwise protected information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events could have a material adverse effect on our financial condition and results of operations.

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In addition, because we provide connections to the Internet and host websites for customers and develop Internet information and applications, we may be perceived as being associated with the content carried over our network or displayed on websites that we host. We are not able to screen all of this content and may face litigation claims due to a perceived association with this content. These types of claims have been brought against other providers of online services in the past. Regardless of the merits of the lawsuits, these types of claims can be costly to defend, divert management resources and attention, and may damage our reputation.

Furthermore, we rely on proper operation and maintenance of our equipment. Any malfunction, capacity constraint or operation interruption of our equipment may have an adverse impact on our business.

Any failure to achieve and maintain effective internal controls could have a material adverse effect on our reputation, business, results of operations and the market prices of our shares and ADSs.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to prevent fraud. We are required to comply with various PRC, U.S. and Hong Kong laws, rules and regulations on internal controls, including the Sarbanes-Oxley Act of 2002. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual reports on Form20-F that contains an assessment by our management of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must issue an auditor’s report on the effectiveness of our internal control over financial reporting.

Internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. As a result, even effective internal controls are able to provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Any of the possible failure in maintaining the effective internal control over financial reporting could result in a decline of investor confidence in the reliability of our consolidated financial statements, which could cause the market prices of our ordinary shares and ADSs to fluctuate.

Revenues derived from our voice services may continue to decline, which may adversely affect our results of operations, financial condition and prospects.

Revenues from our voice services continued to decline during the past several years. Our revenues from voice services decreased by 17.6% from RMB61,678 million in 2017 to RMB50,811 million in 2018 and further decreased by 11.1% to RMB45,146 million in 2019. Percentage of revenues derived from our voice services out of our total operating revenues also continued to decrease, from 16.8% in 2017 to 13.5% in 2018 and 12.0% in 2019.

Of revenues from our voice services, revenues from wireline voice services decreased by 11.4% in 2018 compared to 2017 and further decreased by 6.6% in 2019 and the percentage of revenues derived from our wireline voice services out of our total operating revenues also continued to decrease, from 6.1% in 2017 to 5.2% in 2018 and 4.9% in 2019. This is primarily due to the fact that we continued to lose wireline telephone subscribers resulting from the increasing popularity of mobile voice services and other alternative means of communication, such asOver-the-Top messaging services. The number of our wireline telephone subscribers decreased by 4.4% at the end of 2018 compared to that at the end of 2017 and further decreased by 4.8% at the end of 2019.

Revenues from our mobile voice services decreased by 21.1% in 2018 compared to 2017 and further decreased by 14.0% in 2019 and the percentage of revenues derived from our mobile voice services out of our total operating revenues also continued to decrease, from 10.7% in 2017 to 8.3% in 2018 and 7.1% in 2019. In recent years, while the number of subscribers of our mobile services has continued to grow, due to the increasing popularity of alternative means of communication and the continued decrease in our tariffs for mobile voice services, revenues from our mobile voice services still continued to decrease.

We cannot assure you that we will be successful in slowing down the decline of our revenues generated from voice services. Migration from voice services to other alternative means of communication may further intensify and tariffs for voice services may further decrease in the future, which may affect the financial performance of our voice services and thus adversely affect our results of operations, financial condition and prospects as a whole.

Revenues derived from our wireline broadband services may continue to decline, which may adversely affect our results of operations, financial condition and prospects.

Revenues from our wireline broadband services continued to decline during the past several years. Our revenues from wireline broadband services decreased by 3.2% from RMB76,744 million in 2017 to RMB74,262 million in 2018 and further decreased by 7.9% to RMB68,413 million in 2019. Percentage of revenues derived from our wireline broadband services out of our total operating revenues also continued to decrease, from 21.0% in 2017 to 19.7% in 2018 and 18.2% in 2019. This is primarily due to increasing broadband penetration rates and fierce market competition.

We cannot assure you that we will be successful in slowing down the decline of our revenues generated from wireline broadband services. Wireline broadband market competition may further intensify and tariffs for wireline broadband may further decrease in the future, which may adversely affect our results of operations, financial condition and prospects as a whole.

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We may suffer damage to our reputation due to communications fraud carried out on our network.

Communications fraud, in which a person defrauds another by means of telecommunications technologies including SMS, telephone, and Internet, poses a risk to us. If communications fraud is committed over our network, we may incur liability as a result of the inadequacy in our measures to prevent such fraud. On September 23, 2016, six departments including the Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Public Security, the MIIT, the People’s Bank of China and the China Banking Regulatory Commission jointly released the Announcement on Preventing and Cracking Down on Telecom and Internet Frauds(关于防范和打击电信网络诈骗犯罪的通告),on December 19, 2016, the Supreme People’s Court, the Supreme People’s Procuratorate and the Ministry of Public Security jointly issued the Opinions on Several Issues concerning the Application of Law to the Handling of Criminal Cases Involving Telecom and Internet Frauds (关于办理电信网络诈骗等刑事案件适用法律若干问题的意见), and on October 25, 2019, the Supreme People’s Court and the Supreme People’s Procuratorate released the Interpretation on Several Issues concerning the Application of Law in Handling Criminal Cases Involving Crimes of Illegally Using an Information Network or Providing Aid for Criminal Activities in Relation to Information Network (最高人民法院丶最高人民检察院关于办理非法利用信息网络丶帮助信息网络犯罪活动等刑事案件适用法律若干问题的解释).

We have implemented various measures, including, strictly demanding real name registration and strengthening business management, among others, to prevent and crack down on communications fraud. However, there is no assurance that such measures will prevent communications fraud effectively. Communications fraud as a result of our failure in implementing the real name registration measure may result in claims being brought against us and may damage our reputation and could have an adverse effect on our business and results of operations.

Our license to provide telecommunications services in the United States may be subject to actions by the relevant authorities in the Unities States and we cannot assure you whether we will be able to maintain that license in the future.

Our wholly owned subsidiary, China Telecom (Americas) Corporation provides telecommunications services in the United States pursuant to the license previously issued to it by the United States Federal Communications Commission, or the FCC, under Section 214 of the Communications Act of 1934 (“International 214 License”).

On April 4, 2020, the President of the United States issued an executive order for the establishment of a committee to review foreign participation in the telecommunications services in the United States. On April 9, 2020, The U.S. Justice Department and other federal agencies called on the FCC to revoke China Telecom (Americas) Corporation ’s International 214 License. On April 24, 2020, the FCC issued a Show Cause Order to China Telecom (Americas) Corporation providing it 30 days to explain why the FCC should not initiate proceedings to revoke its authority to operate in the U.S. We will continue to cooperate with the regulators by providing additional details to support our position and address any concerns; however, we cannot assure you that the telecommunications services we provide in the United States and our International 214 License will not be adversely affected. Despite that the revenues from the telecommunications services we provide in the United States in recent years have not been significant to our overall operations and financial results, losing our International 214 License would have an adverse effect on our operations in North America and may also harm our reputation.

Our success depends on the continued services of our senior management team and other qualified employees.

Our continued success and growth depends on our ability to identify, hire, train and retain suitably skilled and qualified employees, including management personnel, with relevant professional skills. The services of our Directors and members of senior management are essential to our success and future growth. As we have to compete for a limited supply of qualified employees, such as managerial, sales, administration, research and development and operating personnel with adequate skills and experience, in China, we may not be able to successfully attract, assimilate or retain all of the personnel we need. We may also need to offer superior compensation and other benefits to attract and retain key personnel and therefore cannot assure you that we will have the resources to fully achieve our staffing need. Due to the intense competition for management and other personnel and qualified employees in the telecommunications industry in mainland China, any failure to recruit and retain the necessary management personnel and other qualified employee could have a material adverse effect on our business and prospects.

We may not be able to effectively detect or prevent misconduct of our executives and other employees, which could adversely harm our reputation and negatively impact our financial conditions and results of operations as well as the trading price of our securities.

We are exposed to the risk of misconduct by executives and other employees and we have experienced incidents of executive misconduct in the past. In May 2017, Mr. Chang Xiaobing, the former Chairman of China Telecom Group was sentenced to six years of imprisonment over corruption charges. Mr. Chang was appointed as the chief executive officer of the Company on September 1, 2015 and the director and chairman of the Company on October 23, 2015. On December 30, 2015, Mr. Chang resigned from his positions as the executive director, chairman and chief executive officer of the Company with effect from the same date. Prior to his resignation, Mr. Chang had worked at the Company for four months. In September 2017, Mr. Zhen Caiji, the former Executive Vice President of the Company was expelled from the Communist Party of China and dismissed from public service for serious disciplinary violations and was under investigation of suspected criminal violations. Mr. Zhen was appointed as an executive vice president of the Company on November 4, 2016 and resigned from the position of executive vice president of the Company on May 22, 2017. Prior to his resignation, Mr. Zhen had worked at the Company for seven months. In response to executive misconducts, we have taken various measures to identify and deter employee misconduct and have adopted a code of conducts and ethics of employees. However, we cannot assure you that these measures will be effective in detecting or preventing all employee misconduct. The publicity of the investigation and/or prosecution against our employees or former employees may harm our reputation and adversely affect our financial condition and results of operations as well as the trading price of our securities.

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Risks Relating to the Telecommunications Industry in the PRC

The current and future government regulations and policies that extensively govern the telecommunications industry may limit our flexibility in responding to market conditions as well as competition, and may have a material adverse effect on our profitability and results of operation.

Our business is subject to extensive government regulation. The MIIT, which is the primary telecommunications industry regulator under the PRC’s State Council, regulates, among other things:

Other PRC governmental authorities also take part in regulating tariff policies, capital investment and foreign investment in the telecommunications industry. The regulatory framework within which we operate may constrain our ability to implement our business strategies and limit our flexibility to respond to market conditions. For example, the PRC governmental authorities have promulgated various regulations, rules, guidance opinions and other directives regarding network speed upgrade and tariff reduction. On May 20, 2015, the office of the State Council promulgated the Guidance Opinions Regarding Expediting the Development of the High-Speed Broadband Network and Promoting the Speed Upgrade and Tariff Reduction, calling for the telecommunications operators to reduce the data tariffs. As a result, we carried out a series of measures, including launching the upgrade service in October 2015 which allowed handset data subscribers who subscribe to our monthly data packages to rollover the unused data remaining in the monthly packages to the next month. In addition, we ceased to charge handset subscribers domestic long distance and roaming fees on and from September 1, 2017. Meanwhile, we have significantly reduced the fees of international, Hong Kong, Macau and Taiwan long distance calls since May 1, 2017 and also have reduced the tariff of Internet dedicated line access for small and medium enterprises.

On March 5, 2018, the Government Work Report presented in the first plenary session of the 13th National People’s Congress of the PRC included certain policy requirements regarding network speed upgrade and tariff reduction, including requirements to: (i) increase efforts in implementing network speed upgrade and tariff reduction measures; (ii) achieve full coverage of high-speed broadband in cities and rural areas; (iii) expand the coverage of free Wifi Internet access in public areas; (iv) substantially reduce the tariffs of household broadband, corporate broadband and dedicated leased line; (v) cancel data roaming fee; and (vi) reduce mobile data tariff by at least 30% in 2018. In 2018, we implemented corresponding measures in due course to meet such policy requirements, including (i) starting July 1, 2018, we canceled data roaming fee within mainland China; (ii) we launched “large data traffic packages” to reduce the unit price of data traffic products; (iii) we further reduced the tariff for international roaming charges in various countries and regions; (iv) we carried out broadband upgrade by promoting Hundred-Mbps broadband; and (v) we reduced the tariff of Internet dedicated line access and commercial dedicated line access for small and medium enterprises.

On March 5, 2019, the Government Work Report presented in the second plenary session of the 13th National People’s Congress of the PRC included policy requirements regarding further promotion of network speed upgrade and tariff reduction. Such requirements include a 15% further reduction in the average broadband tariff for small and medium enterprises and a more than 20% reduction in the average tariff of mobile network in 2019. In 2019, we implemented corresponding measures in due course to meet such policy requirements, including (i) starting January 1, 2019, we reducedout-of-package data tariff; (ii) we enhanced the promotion of large data traffic packages, enabling more subscribers to enjoy data traffic with lower unit tariff; (iii) we launched discounted traffic packages to serve the needs for specific subscribers; and (iv) starting May 1, 2019, we further reduced the tariff of Internet dedicated line access, and carried out free speed upgrade programs for qualified small and medium enterprise subscribers.

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Though we strive to sustain our competitive advantages through various initiatives, our revenues and profitability may be affected by these requirements on network speed upgrade and tariff reduction. We may also have to devote substantial resources, incur significant expenses and make strategic adjustment of business and operation strategies in order to meet these requirements and maintain our competitive advantages. Failure to effectively respond to such evolving standards in a timely and cost-efficient manner may materially and adversely affect our business, financial condition and results of operations. In addition, we may face further policy requirements imposed by the PRC government on network speed upgrade and tariff reduction in the future. Any such requirements could materially and adversely affect our revenues, profitability and results of operations.

In China, the regulatory framework governing the collection, processing, storage and use of business information and personal data is rapidly evolving. For example, the Cyber Security Law of the People’s Republic of China (“Cyber Security Law”) came into force on June 1, 2017, which sets forth the general framework regulating network products, equipment and services, as well as the operation and maintenance of information networks, the protection of personal data, and the supervision and administration of cyber security in China. In 2018, the PRC Government also published Information Security Technology—Personal Information Security Specification (信息安全技术个人信息安全规范), setting forth detailed guidelines on the collection, utilization and retention of personal information and privacy protection. On November 28, 2019, the Cyberspace Administration of China, or the CAC, the MIIT, the Ministry of Public Security, and the State Administration for Market Regulation of the PRC jointly formulated the Method for Identifying the Illegal Collection and Use of Personal Information by Applications (App违法违规收集使用个人信息行为认定方法), which explicitly sets out the specific methods of identifying six types of illegal behaviors of collecting and using personal information through applications. If we are unable to respond to changing laws, regulations, policies and guidelines related to privacy or cyber security, our business, financial condition, results of operations and prospects may be materially and adversely affected.

Moreover, on December 1, 2016, the amended PRC Regulations on the Management of Radio Operation (中华人民共和国无线电管理条例)came into effect. The amended provision provided that a permit is required for using certain radio frequencies, which may be obtained through a bidding process or auctions. As such, we may incur additional costs in the future when we need to obtain the permit to use certain radio frequencies. In addition, the PRC government has taken various initiatives and promulgated a number of regulations to encourage private capital to invest in the telecommunications industry, all of which have intensified, and are expected to continue to intensify, the competition in the telecommunications industry in the PRC. See “—Risks Relating to our Business—We face increasing competition, which may materially and adversely affect our business, financial condition and results of operations” under this Item.

Furthermore, PRC telecommunications services providers operating in other jurisdictions are also subject to the licensing and other regulatory requirements and supervision of the relevant foreign government agencies. See “—Risks Relating to our Business—Our license to provide telecommunications services in the United States may be subject to actions by the relevant authorities in the Unities States and we cannot assure you whether we will be able to maintain that license in the future” under this Item.

The regulations and policies that govern the telecommunications industry in the PRC have experienced continuous changes in the past several years. Any significant future changes in regulations or policies that govern the telecommunications industry may have a material adverse effect on our business and operations.

The PRC government may require us, along with other providers in the PRC, to provide universal services with specified obligations, and we may not be compensated adequately for providing such services.

Under the Telecommunications Regulations promulgated by the State Council, telecommunications service providers in the PRC are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government. The MIIT has the authority to delineate the scope of universal service obligations. The MIIT, together with other governmental authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services. The PRC government currently uses financial resources to compensate for the expenses incurred in the “Coverage to All Villages” and the “Broadband China” projects before the establishment of a universal service fund. See “Item 4. Information on the Company—B. Business Overview—Regulatory and Related Matters—Universal Services”. However, the compensation from the PRC government may not be sufficient to cover all of our expenses for providing the telecommunications services under the “Coverage to All Villages” and the “Broadband China” projects.

Under the Telecommunications Regulations, all PRC telecommunications operators shall provide universal services, and we expect to perform our duties thereunder accordingly. We may not be able to realize adequate return on investments for expanding networks to, and providing telecommunications services in, those economically less developed areas due to potentially higher capital expenditure requirements, lower usage by customers and lack of flexibility in setting our tariffs. If we are required to provide universal services with specified obligations without proper compensation by the government, our business and profitability may be adversely affected.

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Actual or perceived health risks associated with the use of mobile devices could impair our ability to retain and attract customers of our mobile services, reduce mobile service usage or result in litigation.

Concerns have been expressed in some countries that the electromagnetic signals emitted by wireless telephone handsets and base stations may pose health risks at exposure levels below existing guideline levels, and interfere with the operation of electronic equipment. While we comply with applicable standards for radio frequency emissions and we are not aware that such health risks have been substantiated, there can be no assurance that the actual, or perceived, risks associated with the transmission of electromagnetic signals will not impair our ability to retain customers and attract new customers, significantly reduce mobile service and wireless communications usage or result in litigation.

Risks Relating to the People’s Republic of China

Substantially all of our assets are located in the PRC and substantially all of our revenues are derived from our operations in the PRC. Accordingly, our results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in the PRC.

The PRC’s economic, political and social conditions, as well as government policies, could affect our business.

Substantially all of our business, assets and operations are located in the PRC. The PRC’s economy differs from the economies of most developed countries in many respects, including without limitation:

While the PRC’s economy has experienced significant growth in the past 40 years, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of the PRC, but may also have a negative effect on us.

Economic developments in the PRC have a significant effect on our financial condition and results of operations. Although the PRC has been one of the world’s fastest growing economies in terms of GDP growth in the past 40 years, the economic growth of the PRC has experienced a marked slowdown in the past few years and may continue to slow down. For example, the GDP growth rate of the PRC decreased from 10.6% in 2010 to 6.1% in 2019. There is no assurance that the economy of the PRC will continue to grow at a similar rate.

In addition, the outbreak of theCOVID-19 pandemic and its impact might cause a global recession and an evident slowdown in the economic development in many countries and China might not be able to avoid being affected by such development. The global economy may continue to deteriorate in the future and might have an adverse impact on the PRC economy. As the PRC is increasingly connected with the rest of the world, any slowdown or decline of global economy might adversely impact the PRC economy in various respects, including reduction in exports, decreased consumer spending, higher unemployment levels, declined business confidence and continued volatility in financial markets. Any significant slowdown or decline in the PRC economy might have a material adverse impact on the PRC telecommunications industry as well as our business and operations, including decreased demand for, or delayed purchase of, our services and products, especially with regard to non-essential items, such as value-added or premium services.

We are subject to reviews and inspections by governmental authorities and regulatory agencies.

Certain Chinese regulatory authorities may conduct compliance checks on us in accordance with relevant laws and regulations. These reviews and inspections could cover a broad range of aspects in relation to our business and operations. We cannot predict the impact of any findings of these reviews and inspections, and we cannot assure you that the outcome of any such reviews and inspections would not have a material adverse effect on our business, financial condition, results of operations and prospects.

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Government restriction on currency conversion may adversely affect our financial condition.

We receive substantially all of our revenues in Renminbi, which currently is not a freely convertible currency. A portion of these revenues must be converted into other currencies to meet our foreign currency obligations. These foreign currency-denominated obligations include:

Under the PRC’s existing foreign exchange regulations, we will be able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, the PRC government may take measures at its discretion in the future to restrict access to foreign currencies for both current account transactions and capital account transactions. We may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs, if the PRC government restricts access to foreign currencies for current account transactions.

Foreign exchange transactions under our capital account, including but not limited to foreign currency-denominated borrowings from foreign banks, issuance of foreign currency-denominated debt securities, if any, and principal payments in respect of foreign currency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of or registration with SAFE or certain banks designated by SAFE, as applicable. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange to meet our payment obligations under the debt securities, if any, or to obtain foreign exchange for capital expenditures.

Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.

We receive substantially all of our revenues, and our financial statements are presented, in Renminbi. The value of the Renminbi against U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in the PRC’s and international political and economic conditions. For example, the recentCOVID-19 pandemic has led to disruption and volatility in the global financial markets, which may increase uncertainties in the foreign exchange markets and also fluctuations in the value of the Renminbi. On July 21, 2005, the People’s Bank of China introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. In April 2012, the People’s Bank of China expanded the daily floating band of Renminbi trading prices against the U.S. dollar in the inter-bank spot foreign currency exchange market from 0.5% to 1.0%, which was further expanded to 2.0% in March 2014. On August 11, 2015, the People’s Bank of China announced that themid-point exchange rate for the floating range of Renminbi against the U.S. dollar will be determined based on market maker submissions that take into account theRenminbi-U.S. dollar exchange rate at the previous day’s closing of the inter-bank spot foreign exchange market, the supply and demand dynamics and the movements of other major currencies. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the People’s Bank of China may in the future announce further changes to the exchange rate system and there is no guarantee that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. There is uncertainty in the exchange rate of the Renminbi against the U.S. dollar in the future.

Fluctuations in exchange rates may adversely affect the value, translated or converted into U.S. dollars or Hong Kong dollars, of our net assets, earnings and any declared dividends payable on our H shares in foreign currency terms. Our financial condition and results of operations may also be affected by changes in the value of certain currencies other than the Renminbi, in which our obligations are denominated. For further information on our foreign exchange risks and certain exchange rates, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Rate Risk”. We cannot assure you that any future movements in the exchange rate of the Renminbi against the U.S. dollar or other foreign currencies will not adversely affect our results of operations and financial condition. We do not currently engage in any foreign currency hedging activities.

The PRC legal system has inherent uncertainties that could limit the legal protections available to you.

We were incorporated under PRC laws and are governed by our Articles of Association. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. With the continuous development of the Chinese economy, the PRC government has promulgated laws and regulations dealing with economic matters, such as issuance and trading of securities, foreign investment, corporate organization and governance, commerce, taxation and trade, with the aim of forming a comprehensive business legal system. However, because many related laws and regulations are relatively new, and because of the rapid development in the PRC telecommunications industry, the impact of these laws and regulations on the rights and obligations of relevant persons involves uncertainties.

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The ability of our shareholders to enforce their rights in respect of violations of corporate governance procedures may be limited. In this regard, our Articles of Association provide that most disputes between holders of H shares and our Company, Directors, Supervisors, officers or holders of domestic shares, arising out of our Articles of Association or the PRC Company Law and related regulations concerning the affairs of our Company, are to be resolved through arbitration by an arbitration tribunal in Hong Kong or the PRC, rather than by a court of law. Awards that are made by PRC arbitral authorities recognized under the Arbitration Ordinance of Hong Kong can be enforced in Hong Kong. Hong Kong arbitration awards are also enforceable in the PRC. However, to our knowledge, no action has been brought in the PRC by any holder of H shares to enforce an arbitral award, and we are uncertain as to the outcome of any action, if brought in the PRC to enforce an arbitral award made in favor of holders of H shares. See “Item 10. Additional Information—B. Memorandum and Articles of Association”.

To our knowledge, there has not been any published report of judicial enforcement in the PRC by holders of H shares of their rights under the Articles of Association of a PRC company or the PRC Company Law.

Unlike in the United States, the applicable PRC laws did not specifically allow shareholders to sue the directors, supervisors, senior management or other shareholders on behalf of the corporation to enforce a claim against such party or parties that the corporation has failed to enforce itself until January 1, 2006, when the amendments to the PRC Company Law passed on October 27, 2005 became effective. The amended PRC Company Law provides that shareholders, under certain circumstances, may sue the directors, supervisors and senior management on behalf of the corporation. Furthermore, the Supreme People’s Court issued judicial interpretations on the aforementioned provisions in the PRC Company Law, i.e., Provisions of the Supreme People’s Court on Issues Concerning the Application of the PRC Company Law (I) and (IV) (最高人民法院关于适用《中华人民共和国公司法》若干问题的规定(一)和(四)) in April 2006 and August 2017, respectively. However, our minority shareholders may not be able to enjoy protections to the same extent as to shareholders of companies incorporated under the state laws of the United States.

Although we are subject to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and the Hong Kong Code on Takeovers and Mergers and ShareBuy-backs (the “Takeovers Code”), the holders of H shares are not able to bring actions solely on the basis of violations of the Listing Rules or the Takeovers Codes, and must rely on The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange” or “HKSE”) and the Securities and Futures Commission of Hong Kong to enforce the Listing Rules or the Takeovers Codes, as the case may be.

You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management, and the ability of U.S. authorities to bring action in China may also be limited.

We are a company incorporated under PRC laws, and substantially all of our assets and our subsidiaries are located in the PRC. In addition, most of our Directors and officers reside within the PRC, and substantially all of the assets of our Directors and officers are located within the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside the PRC upon most of our Directors or officers, including with respect to matters arising under applicable laws and regulations. Moreover, our PRC counsel has advised us that the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom or most other Western countries. Our Hong Kong counsel has also advised us that Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States. As a result, you may not have the ability to seek certain legal remedies in U.S. courts as private plaintiffs. Even if you sue successfully in a U.S. court or any of the other jurisdictions mentioned above, you may not be able to collect on such judgment against the Company or our Directors and officers. You may have to rely on domestic legal remedies that are available in the PRC. Recognition and enforcement in the PRC of judgments of a court in the United States and any of the other jurisdictions mentioned above in relation to any matter not subject to a binding arbitration provision may be difficult or impossible. In addition, the SEC, the U.S. Department of Justice and other U.S. authorities may have difficulties in bringing and enforcing actions against us or our Directors and officers in China.

Holders of H shares may be subject to PRC taxation.

Under the Enterprise Income Tax Law of the PRC, or the EIT Law, and its implementing regulations, holders of our H shares or ADSs which are“non-resident enterprises” for the EIT Law’s purpose are subject to enterprise income tax at the rate of 10.0% with respect to dividends paid by us and income derived from sale of our H shares or ADSs, unless reduced under an applicable tax treaty. In addition, a resident enterprise, including a foreign enterprise whose “de facto management body” is located in the PRC, is not subject to any PRC income tax with respect to dividends paid to it by us. The capital gains realized by such resident enterprise are subject to the PRC enterprise income tax. Specifically, according to the Notice of the PRC State Administration of Taxation Concerning the Withholding Enterprise Income Tax on Dividend Distributed by PRC Resident Enterprises to OverseasNon-Resident Enterprise Holders of H shares issued in November 2008 and the Approval of the PRC State Administration of Taxation Concerning the Collection of Enterprise Income Tax on Dividend fromB-shares Received byNon-Resident Enterprise issued in July 2009, when PRC resident enterprises distribute dividend to overseasnon-resident enterprise holders of H shares for the year 2008 and the years thereafter, the 10.0% enterprise income tax will be withheld. The Company will withhold the 10.0% enterprise income tax when it pays dividend to holders of H shares or ADSs who arenon-resident enterprises. See “Item 10. Additional Information—E. Taxation—People’s Republic of China”.

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Furthermore, dividends paid by us to holders of our H shares or ADSs who are individuals outside the PRC are subject to a withholding tax of 20.0% unless reduced by an applicable tax treaty. For example, Hong Kong and Macau individual residents are subject to a withholding tax of 10.0% on dividends paid to them. In addition, gains realized by individuals upon the sale or other disposition of our H shares or ADSs are temporarily exempted from PRC capital gains tax. If the exemptions are withdrawn in the future, holders of our H shares or ADSs who are individuals may be required to pay PRC capital gains tax upon the sale or other disposition of our H shares. See “Item 10. Additional Information—E. Taxation—People’s Republic of China”.

Natural disasters and health hazards in the PRC may severely disrupt our business and operations and may have a material adverse effect on our financial condition and results of operations.

Several natural disasters and health hazards have struck mainland China in recent years. See “—Risks Relating to Our Business—Our business may be materially and adversely affected byCOVID-19 pandemic or future health epidemics, pandemics or outbreaks” under this Item. In 2019, certain areas of mainland China suffered from natural disasters, including a 6.0 magnitude earthquake struck Changning County, Sichuan Province, super typhoon “Lekima” hit multiple provinces and cities, multiple landslides in Wenchuan of Sichuan Province and Yanjing of Yunnan Province, which resulted in significant damage to the telecommunications equipment in the affected areas. We have suffered damage from similar nature disasters in the past years. We are unable to predict the effect, if any, that any future natural disasters and health hazards may have on our business. Any future natural disasters and health hazards may, among other things, significantly disrupt our ability to adequately staff our business, and may generally disrupt our operations. Furthermore, such natural disasters and health hazards may severely restrict the level of economic activity in affected areas, which may in turn materially and adversely affect our business and prospects. As a result, any severe natural disasters or health hazards may have a material adverse effect on our financial condition and results of operations.

The audit reports included in this annual report have been prepared by our independent registered public accounting firm whose work may not be inspected fully by the Public Company Accounting Oversight Board and, as such, you may be deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.

Because we have substantial operations within the PRC and the PCAOB is currently unable to conduct inspections of the work of our independent registered public accounting firm as it relates to those operations without the approval of the Chinese authorities, our independent registered public accounting firm is not currently inspected fully by the PCAOB. This lack of PCAOB inspections in the PRC prevents the PCAOB from regularly evaluating our independent registered public accounting firm’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On November 4, 2019, the SEC announced that SEC and PCAOB had dialog with the “Big Four” accounting firms, which emphasized the need for effective and consistent global firm oversight of member firms, including those operating in China. On February 19, 2020, the SEC and the PCAOB further issued a joint statement on continued dialog with “Big Four” accounting firms on audit quality in China, highlighting that PCAOB continues to be prevented from inspecting the audit work and practices of PCAOB-registered audit firms in China on a comparable basis to othernon-U.S. jurisdictions. However, it remains unclear what further actions the SEC and PCAOB will take to address the problem.

Inspections of other firms that the PCAOB has conducted outside the PRC have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct full inspections of auditors in the PRC makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside the PRC that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements. As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular PRC laws, in June 2019, a bipartisan group of lawmakers introduced the Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges Act, or the EQUITABLE Act, in both houses of the U.S. Congress to require the SEC to maintain a list of issuers for which the PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The EQUITABLE Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges (including the New York Stock Exchange) of issuers included on the SEC’s list for three consecutive years. It is unclear if and when this proposed legislation would be enacted. Enactment of this legislation or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the market price of our ADSs could be adversely affected.

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If the settlement reached between the SEC and the Big FourPRC-based accounting firms (including the Chinese affiliate of our independent registered public accounting firm), concerning the manner in which the SEC may seek access to audit working papers from audits in China of U.S.-listed companies, is not or cannot be performed in a manner acceptable to authorities in China and the U.S., we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the mainland Chinese affiliates of the “Big Four” accounting firms (including the mainland Chinese affiliate of our independent registered public accounting firm). A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the Chinese accounting firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the Chinese accounting firms reached a settlement with the SEC whereby the proceedings were stayed. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the China Securities Regulatory Commission (“CSRC”). The Chinese accounting firms will receive requests matching those under Section 106 of the Sarbanes-Oxley Act of 2002, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the Chinese accounting firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automaticsix-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the recently-stayed proceeding against all four firms. The SEC also reserves the right to resume those proceedings in circumstances where, notwithstanding the accounting firms’ compliance with the procedures in the settlement agreement, the SEC does not receive a production of documents which it considers satisfactory (for example because of action or inaction by the Chinese authorities). Under the terms of the settlement, the underlying proceeding against the fourPRC-based accounting firms was deemed dismissed with prejudice at the end of four years starting from the settlement date, which was February 6, 2019. We cannot predict if the SEC will further challenge the fourPRC-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions. If additional challenges are imposed on the Chinese affiliates of the “Big Four” accounting firms, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act. In addition, if the Chinese affiliate of our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. These could lead to possible delisting of our ordinary shares from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States. Moreover, any negative news about any such future proceedings against these accounting firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

Our Restructuring and Initial Public Offering in 2002

We were incorporated under PRC laws on September 10, 2002 as a joint stock company with limited liability under the name “China Telecom Corporation Limited”. As part of our initial restructuring, China Telecom Group’s telecommunications operations in Shanghai Municipality, Guangdong Province, Jiangsu Province and Zhejiang Province, together with the related assets and liabilities, were transferred to us in consideration of 68,317,270,803 of our shares.

Following our restructuring, China Telecom Group continues to be the holder of the licenses required for operating our telecommunications business. In accordance with the approval of the MIIT, we derive our exclusive rights to operate basic telecommunications business and the rights to operate related value-added telecommunications business from our status as a subsidiary controlled by China Telecom Group, and China Telecom Group must hold and maintain all licenses received from the MIIT in connection with our business for our benefits. The government currently does not charge license fees for the telecommunications licenses held by China Telecom Group.

In 2002, we successfully completed our initial public offering of H shares and raised approximately RMB10,659 million in aggregate net proceeds for us. Upon completion of our initial public offering, our H shares have been listed for trading on the Hong Kong Stock Exchange, and ADSs representing our H shares have been listed for trading on the NYSE.

Establishment of the Tower Company and the Disposal and Lease of the Telecommunications Towers

On July 11, 2014, the Company, CUCL and CMCL entered into a Promoters’ Agreement for China Communications Facilities Services Corporation Limited to jointly establish the Tower Company. The registered capital of the Tower Company was RMB10 billion. The Company, CUCL and CMCL subscribed for 2.99 billion shares, 3.01 billion shares and 4.00 billion shares, respectively, of the Tower Company in cash at a par value of RMB1.00 per share, representing a shareholding percentage of 29.9%, 30.1% and 40.0%, respectively. The Tower Company was registered on July 15, 2014 and was renamed as China Tower Corporation Limited on September 2, 2014. We had paid in our subscription of the registered capital of the Tower Company by December 31, 2014.

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On October 14, 2015, the Company entered into the Transfer Agreement with (i) CMCL and related subsidiaries (together, “Mobile”), (ii) CUCL and Unicom New Horizon Telecommunications Company Limited (“New Horizon”, together with CUCL, “Unicom”), (iii) China Reform Holding Company Limited (“CRHC”) and (iv) the Tower Company. Pursuant to the Transfer Agreement, the Company agreed to sell certain telecommunications towers and related assets in an aggregate amount of RMB30,131 million and inject cash in the amount of RMB2,966 million to the Tower Company in exchange for 33,097 million new shares, with a par value of RMB1.00 per share, issued by the Tower Company. The cash injected by the Company into the Tower Company under the Transfer Agreement was funded by the Company using its internal cash resources. All conditions precedent to the completion of the transactions contemplated under this agreement were fulfilled and completion of the transactions contemplated under this agreement occurred on October 31, 2015. As a result, the Company, Mobile, Unicom and CRHC own 27.9%, 38.0%, 28.1% and 6.0%, respectively, of the share capital of the Tower Company. On January 29, 2016, the Company and the Tower Company entered into a Share Subscription Agreement to acknowledge the number and price of the shares issued by the Tower Company to the Company.

The Company realized a gain (subject to deduction of relevant expenses and taxes) from the tower assets disposal described above, which was calculated based on the surplus of the final consideration for the tower assets disposal over the book value of such assets as of the completion date. The total gain from the tower assets disposal was RMB7,231 million. As the Company holds 27.9% of the share capital of Tower Company following the completion of such tower assets disposal, 72.1% of the aforesaid gain has been recognized at the completion date of such tower assets disposal in the Company’s consolidated statement of comprehensive income for 2015 and the remaining 27.9% of the aforesaid gain is deferred over the remaining useful life of the tower assets. Upon completion of the disposal of tower assets by the Company to the Tower Company, the Company and Tower Company entered into the Lease Agreement on July 8, 2016 that sets forth the pricing and related arrangements in relation to the lease of telecommunications towers and related assets (including both acquired towers and new towers). On February 1, 2018, the Company and Tower Company entered into a supplemental agreement on the basis of the original Lease Agreement mainly to adjust the relevant pricing arrangement of tower products under the Lease Agreement and such adjustment was effective from January 1, 2018 and expiring on December 31, 2022.

In August 2018, the Tower Company completed its H shares global offering and was listed on the Main Board of The Stock Exchange of Hong Kong Limited. As a result, our equity interest in the Tower Company is diluted from 27.9% to 20.5%.

The Tower Company is primarily engaged in the construction, maintenance and operation of telecommunications towers as well as ancillary facilities. The Tower Company will have a significant effect on the growth of our mobile business and our results of operations, please see “Item 3. Key Information—D. Risk Factors—Risk Relating to Our Business—Our operations and further development of our mobile business is dependent on the Tower Company”. We have leveraged the rich towers resources of the Tower Company to promptly and effectively expand our 4G network coverage and density, and improve our network competitive strength; in the long term, we would benefit from the operations of the Tower Company in the following aspects: (i) we would enhance our long-term profitability by leveraging on the existing tower assets as well as the cooperation made possible by the Tower Company; and (ii) as one of the major shareholders of the Tower Company, we would benefit from its future earnings and value enhancement.

Disposal ofE-store and Establishment of Tianyi Capital

On September 25, 2017, the Company entered into a disposal agreement with Besttone Holding Co., Ltd., or Besttone Holding, a subsidiary of China Telecom Group, pursuant to which the Company agreed to sell to Besttone Holding the 100% equity interest inE-store for an initial consideration of RMB249 million, which was concluded based on the valuation of the equity interest inE-store as of March 31, 2017. In addition, an adjustment was made to the initial consideration to arrive at the final consideration based on the change in the book value of the net assets ofE-store during the period from March 31, 2017 to the completion date of the disposal. The control of the equity interest inE-store was transferred to Besttone Holding on October 31, 2017. The final consideration was arrived at RMB251 million, among which the initial consideration amounting to RMB249 million was received by us on November 16, 2017.

On November 30, 2017, we set up a wholly-owned subsidiary, Tianyi Capital, which engages in capital investment activities and provision of consulting services. The registered capital of Tianyi Capital is RMB5,000 million.

Establishment of China Telecom Leasing Corporation Limited

On November 30, 2018, we and China Telecom Global Limited jointly established China Telecom Leasing Corporation Limited, which engages in telecommunications equipment procurement, financial leasing and related fund raising operations. The registered capital of China Telecom Leasing Corporation Limited is RMB5,000 million with 75% and 25% equity interest held by us and China Telecom Global, respectively.

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Establishment of China Telecom Group Finance Co., Ltd.

On June 22, 2018, we, China Telecommunications Corporation and China Communications Services Corporation Limited (“CCS”, a subsidiary of China Telecommunications Corporation) entered into a capital contribution agreement to jointly establish China Telecom Finance. China Telecom Finance, anon-banking financial institution legally established with the approval of China Banking and Insurance Regulatory Commission, is a limited liability company incorporated in the PRC on January 8, 2019 with the purpose of providing capital and financial management services to the member units of China Telecommunications Corporation. Pursuant to the capital contribution agreement, the registered capital of China Telecom Finance is RMB5,000 million. The Company, China Telecommunications Corporation and CCS respectively contributed RMB3,500 million, RMB750 million and RMB750 million, which respectively represent 70%, 15% and 15% of the total registered capital of China Telecom Finance. Upon its establishment, China Telecom Finance became anon-wholly owned subsidiary of the Company.

On February 1, 2019, China Telecom Finance entered into financial services framework agreements with the Company, China Telecommunications Corporation and CCS, respectively, pursuant to such agreements China Telecom Finance agreed to provide financial services, including deposit services, loan services and other financial services to the Company and its subsidiaries, China Telecommunications Corporation, its associates and its commonly held entity held with the Company and/or its subsidiaries (not including the Company, CCS and their subsidiaries themselves), and CCS and its subsidiaries.

Establishment ofE-surfing Smart Home Technology Co., Ltd.

On February 1, 2019, we set up a wholly–owned subsidiary, Smart Home Company, which engages ine-Surfing HD, smart home, home gateway and Smart Home Networking services targeting the Smart Family Ecosphere. The registered capital of Smart Home Company is RMB1,000 million.

Establishment ofE-surfing Internet of Things Technology Co., Ltd.

On February 2, 2019, we set up a wholly–owned subsidiary, IoT Company, which engages in the Internet of Things (“IoT”) and Internet of Vehicles services targeting IoT Ecosphere. The registered capital of IoT Company is RMB1,000 million.

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Organizational Structure

Set out below is a chart illustrating our corporate structure and significant subsidiaries as of April 23, 2020:

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In addition, our Company has a branch in each of 22 provinces, five autonomous regions and four centrally administered municipalities in the PRC.

General Information

Our principal executive offices are located at 31 Jinrong Street, Xicheng District, Beijing, PRC 100033 and our telephone number is(+86-10) 5850-1800. Our website address iswww.chinatelecom-h.com. The information on our website is not a part of this annual report. We have appointed CT Corporation System at 28 Liberty St., New York, New York 10005 as our agent for service of process in the United States.

Our U.S. public filings are available at the website maintained by the SEC at www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

We are an integrated intelligent information service provider in the PRC with full-service capabilities. We offer a comprehensive range of telecommunications services, including Internet services, information and application services, voice services, telecommunications network resource and equipment service and other related services. We aim to provide differentiated and innovative services to create value for customers by leveraging on our integrated resources.

In December 2013 and February 2015, the MIIT issued to China Telecom Group, our controlling shareholder, the permit to operate 4G business nationwide based onTD-LTE technology and LTE FDD technology, respectively. We have been authorized by China Telecom Group to operate 4G mobile business in the PRC.

In December 2018, China Telecom Group, our controlling shareholder, was granted the approval from the MIIT to permit China Telecom Group to utilize the 3400-3500MHz spectrum nationwide to conduct fifth generation mobile communication pilot programs. We have been authorized by China Telecom Group to conduct 5G system scale trial in the PRC.

In June 2019, China Telecom Group, our controlling shareholder, was granted the permit from the MIIT to operate 5G digital cellular mobile service nationwide and we have been authorized by China Telecom Group to develop 5G business nationwide. In October 2019, we officially launched the 5G commercial services in 50 cities nationwide offering 5G services to individuals, households and government and enterprise customers.

Our Operation Strategy

In 2019, taking advantage of the invaluable opportunities arising from the digital transformation of the economy and society, as well as 5G commercialization, we accelerated our expansion of integrated information services, consolidated our capabilities in network, service and operation, while continuing to deepen our reform and innovation. We strived to strengthen our capabilities at all levels, while planning future developments on all fronts. In particular:

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In 2019, we strengthened our aggregation and application of data, with capabilities of our corporate core continuing to manifest. By launching the next generation BSS3.0 system and through the optimization of our product management as well as development of operation systems, we achieved rapid loading and automatic activation of our cloud-network integration services. We also conducted network construction and maintenance supported by Big Data and applied AI technologies to automate management functions.

Subscribers and Service Usage

Our operating revenues depend largely on the size of our customer base, usage volume and the structure and level of our tariffs. The following table shows our selected operating data as of the dates and for the periods indicated.

Our Products and Services

Internet Services

Our Internet services consist of wireline Internet access services, includingdial-up and broadband services, and mobile Internet services. Internet services have become increasingly important in our revenue structure. We offer Internet services through integrated and customizable service plans along with other various business models, which create the synergy that mutually benefits our Internet, mobile and other services.

In 2019, focusing on customers’ perceptions and demands, we adopted proactive sales and marketing strategies and further strengthened data operation as well as business convergence. We strengthened terminal operations by stepping up effort in developing Orange Installment Payment Service and sales and marketing organization in key markets. As of December 31, 2019, the total number of our mobile subscribers was approximately 335.6 million with a net addition of almost 32.6 million for the full year, ranking second in the domestic industry.

In addition, we created a new development mode of “5G + Privileges + Applications” to forge new edges in the area of individual informatization services. We strengthened operation of our membership system, cooperated with leading partners to continue to develop ecosystem privileges and introduced HD contents and launched a number of featured applications such as Cloud VR/AR, Cloud Gaming, and Cloud Computer. We officially launched 5G commercial services in 50 cities nationwide in October 2019 and as of the end of March 2020, the number of 5G package subscribers was approximately 16.6 million, empowering the future growth of our mobile internet business.

We proactively planned household informatization services, created Smart Family product and service portfolio and forged anend-to-end service system for “5G + Gigabit Broadband + Smart Family Applications”. See “—Information and Application Services” below for further details. Amidst fierce market competition, we continued to expand our broadband subscriber scale with customer loyalty remaining stable. As of December 31, 2019, the number of our wireline broadband subscribers reached 153.1 million, representing a net addition of 7.3 million from 145.8 million as of December 31, 2018.

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In September 2019, in order to build a 5G network on an efficient basis and to rapidly create our 5G service capabilities, we entered into the 5G Cooperation Agreement with CUCL to leverage the mutually complementary advantages in network and spectrum resources and rolled out 5G networkco-building andco-sharing, effectively saving costs on network construction, operation and maintenance while enhancing the market competitiveness of 5G network and business. For more details, see “Item 4. Information on the Company—B. Business Overview—NetworkSystem—Co-building andco-sharing of 5G network with China Unicom”. By the end of 2019, we had built 40,000 5G base stations, andco-shared more than 20,000 of CUCL’s 5G base stations. The total number of 5G base stations in use exceeded 60,000, covering key areas of over 50 cities where 5G commercialization has commenced. Meanwhile, we accelerated the resources and technologies accumulation for 5G carrying network and core network.

Information and Application Services

Our information and application services include Internet protocol TV, or IPTV(e-Surfing HD), Smart Home Networking Services, Family Cloud,e-Surfing Webcam, Internet data center (the “IDC”), cloud computing, content delivery networks, or CDN, Big Data, digital platform and system integration related services, as well as caller display, SMS, multimedia messaging services, or MMS, email services and music related content and applications services.

In 2019, we continued to promote household informatization services, and ourfive-in-one Smart Family product and service portfolio, combining Smart Broadband, Smart Home Platform, Smart Applications, Smart Security and Smart Services, began to take shape. The number of oure-Surfing HD (IPTV) subscribers reached 112.6 million as of December 31, 2019 from 105.3 million as of December 31, 2018. The Smart Family applications are becoming more enriched and delivering an increasing value contribution.

We continued to build up and unleash the unique advantages of cloud-network integration, and expanded the combination of basic network access with technologies such as cloud computing, Big Data and IoT. We innovated and optimized organizations and mechanisms, and continued to enhance professional capabilities. We also focused on key areas to develop use cases, as well as gathered industries’ forces to forge the “5G + Cloud + DICT” ecosystem. Our IoT open platform supported mainstream IoT access protocols, enabling the rapid launch of partners’ application products , and the number of IoT connected devices reached 157.4 million as of December 31, 2019, representing an increase of 47.2% over that of December 31, 2018. The number of average monthly active users of “BestPay” reached 56.3 million in 2019, representing an increase of 29.7% over last year.

Voice Services

Our voice services include mobile voice services and wireline voice services.

Prior to September 1, 2017, our mobile voice services included local calls, domestic long distance calls, international long distance calls, intra-provincial roaming, inter-provincial roaming and international roaming. We ceased to charge mobile voice services subscribers the domestic long distance and intra-provincial and inter-provincial roaming fees on and from September 1, 2017. In 2018, we insisted on the multi-mode handset strategy, promoted industry chain development, and published the industry’s first white paper on multi-mode artificial intelligence handsets.

Amid the intense market competition in 2019, the number of our mobile subscribers grew from 303.0 million as of December 31, 2018 to 335.6 million as of December 31, 2019. The mobile voice usage decreased to 820.3 billion minutes in 2019 from 827.7 billion minutes in 2018.

Our wireline voice services include local wireline services, domestic long distance wireline services and international, Hong Kong, Macau and Taiwan long distance wireline services. The total number of wireline telephone subscribers decreased to 110.9 million as of December 31, 2019 from 116.5 million as of December 31, 2018. The total wireline local voice usage decreased from 60.2 billion pulses in 2018 to 55.9 billion pulses in 2019.

The decrease in the number of wireline telephone subscribers and wireline voice service usage was primarily attributable to the increasing penetration of alternative communication means, such asOver-the-Top messaging services and the migration of certain wireline telephone subscribers to our mobile services.

In addition, we continued to enhance the scale development of industry applications to attract government and enterprise subscribers.

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Telecommunications Network Resource and Equipment Services

Our telecommunications network resource and equipment services primarily include services relating to our optic fiber and circuits, such as the use of optic fiber and circuit; virtual private network, or VPN, and use of bandwidth. We offer telecommunications network resource and equipment services as certain of our overall telecommunications solutions to large enterprise customers, including government authorities, large corporations and institutions. Many of these customers choose to use our circuits to form VPNs based on various technologies, and links their local area networks at different locations. We also collaborate with a number of international telecommunications service providers to provide global communications services for multinational corporations. In addition, we provide network equipment to large enterprise customers.

In 2019, we continued to focus on government, financial and large enterprise customers. Our marketing efforts focused on providing globalone-stop services, tailored services and total solutions to these customers. These customers can enjoy a full range of consulting and technical support and services by contacting any of our designated account managers.

Others

Our other services primarily include sales and repairs and maintenance of equipment, resale of mobile services and property rental.

Our Customers and Brand Management

In 2019, we continued to promote our full-service brand names under the brand “China Telecom”, and further enhanced the brand image of “China Telecom” as an integrated intelligent information service operator through, among others, promoting China Telecom broadband,e-Surfing Smart Family (including Smart Home Networking,e-Surfing Webcam, Family Cloud and other products), Hello 5G ande-Surfing Cloud services and products. Through providing contents to our services on a multi-dimensional level and our coordinated marketing efforts, we continue to strengthen and enhance the brand recognition and market influence for “China Telecom”.

Tariffs

Prior to May 2014, the levels and categorization of most of our current tariffs were subject to regulation by various government authorities. As a result of the governmental effort to gradually ease the regulations on the tariffs, the MIIT and the National Development and Reform Commission of the People’s Republic of China (the “NDRC”) issued the Notice on Implementing the Market Based Tariffs for Telecommunications Services, pursuant to which, effective from May 10, 2014, telecommunications operators are permitted to set the tariffs of all telecommunications services based on the cost, customers’ demand and market conditions. See “—Regulatory and Related Matters—Tariff Setting” included elsewhere under this Item.

Wireline Voice Services

For our local wireline telephone services, we charge usage fees based on call usage.

Currently, all domestic long distance wireline services using public switched telephone network (the “PSTN”), are charged at the unified rate with a discount rate duringoff-peak hours.

We offer international, Hong Kong, Macau and Taiwan long distance wireline services through the international gateways of China Telecom Group. China Telecom Group negotiates bilateral settlement arrangements and rates based on the international settlement standards in the telecommunications industry, and we follow those settlement arrangements and rates.

Mobile Voice Services

Generally we charge subscribers of our mobile voice services the following categories of tariffs: local usage charges, long-distance call charges and roaming charges. However, in 2016, we waived domestic long distance call charges and roaming charges for voice services in our new 4G subscription plans. By the end of 2016, we stopped offering subscription plans with separate billing for long distance call charges and roaming charges, and all new plans had nationally uniform prices for voice services domestically. In addition, we ceased to charge handset subscribers domestic long distance and roaming fees on and from September 1, 2017.

With respect to international, Hong Kong, Macau and Taiwan roaming of our mobile voice services, we provide roaming services to our customers and determine the roaming charges in accordance with roaming agreements between China Telecom Group and the international, Hong Kong, Macau and Taiwan operators.

Internet Services and Information and Application Services

We determine tariffs for these services according to market conditions. In addition, pursuant to the policy requirements of the PRC government regarding network speed upgrade and tariff reduction, in 2019, we rolled out corresponding measures in due course to meet the policy requirements, including (i) starting January 1, 2019, we reducedout-of-package data tariff; (ii) we enhanced the promotion of large data traffic packages, enabling more subscribers to enjoy data traffic with lower unit tariff; (iii) we launched discounted traffic packages to serve the needs for specific subscribers; and (iv) starting May 1, 2019, we further reduced the tariff of Internet dedicated line access, and carried out free speed upgrade programs for qualified small and medium enterprise subscribers.

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Telecommunications Network Resource and Equipment Services

We determine the tariffs for our telecommunications network resource and equipment services according to market conditions. We generally charge a fee for installation of our telecommunications network resource services and a fixed monthly fee. We offer various promotion discounts for our customers who wish to upgrade to higher bandwidth services. These promotion discounts have stimulated demand for our telecommunications network resource services in recent years. Besides, we generally charge monthly fees for our network equipment service on a discount basis and the tariff for network equipment service have generally decreased in recent years. We provide different discounts to our customers on a case by case basis.

Interconnection and Roaming Arrangements

Interconnection

Interconnection refers to various arrangements that permit the connection of our networks to other mobile, wireline networks or Internet backbone networks. These arrangements provide for the sharing and settlement of revenues from the base usage charges and, if applicable, roaming charges and domestic and international long distance charges as well as the interconnection arrangement and settlement of Internet backbone networks.

China Telecom Group entered into interconnection settlement agreements with other telecommunications operators, including Unicom Group, China Mobile Group and China Transport Telecommunication Information Group Co., Ltd. We entered into an interconnection settlement agreement, as amended, with China Telecom Group, which allows our networks to interconnect with China Telecom Group’s networks as well as networks of the other telecommunications operators, with whom China Telecom Group had interconnection arrangements. Our interconnection arrangements with China Telecom Group and other telecommunications operators enable our subscribers to communicate with the subscribers of those operators and to make and receive local, domestic and international long distance calls and to access the Internet backbone networks. All interconnection and settlement arrangements among public wireline telephone, mobile, and Internet networks in the PRC are governed by the Telecommunications Regulations promulgated by the State Council and the Telecommunications Regulations and the Administrative Rules on Interconnection between the Public Telecommunications Networks promulgated by the MIIT. See “—Regulatory and Related Matters—Interconnection” included elsewhere under this Item.

International Roaming

As for voice and data services, we provide international roaming services to our subscribers, which allow them to access mobile telecommunications services and use voice, SMS and data services while they are physically outside of their registered service area but in the coverage areas of other mobile telecommunications networks in other countries and regions with which we or our roaming provider have roaming arrangements.

As of December 31, 2019, subscribers of our mobile services can roam on mobile networks in more than 200 countries and regions based on international roaming agreements between China Telecom Group and the local operators or roaming service providers. A mobile service subscriber using international roaming services is charged at our roaming usage rates for both incoming and outgoing calls, plus applicable long distance tariffs. We settle roaming revenues and expenses with international telecommunications operators in accordance with roaming agreements between China Telecom Group and the international operators. China Telecom Group has also agreed to our participation in the negotiation of its future international roaming agreements.

Marketing, Sales, Distribution and Customer Services

Marketing, Sales and Distribution

Our marketing strategy is to establish our image as an intelligent full-service telecommunications service provider and utilize our comprehensive services platform and nationwide marketing and distribution network. We have devoted substantial efforts in advertisements to promote recognition of and loyalty to our products and services. In order to respond to market competition as well as attract and motivate customers to use our services, we have also combined certain voice and data products into one integrated service plan to targeted customers to address their telecommunications needs.

We utilized data to enhance our operation efficiency and strengthened data consolidation and analysis to empower our frontline sales by adopting precision matching products strategies, and fully launched the BSS3.0 system resulting in significant increase in the efficiency of product operation. By optimizing the layout of our sales channels, applying chainstore approach in the operations of our core outlets, and exploring scene marketing for 5G + Smart Family services, we further improved our professional competence and steadily increased the operation efficiency of our sales channels. We formed a customer-oriented product system, continued to optimize product management, development and operation based on customers’ needs.

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Furthermore, we have adopted various sales and marketing approaches and initiatives, such as customer experience, customer relationship management, SMS, telesales, sales plans and joint promotion with our business partners such as Internet portal companies and software development companies, to promote our products and services, in particular, our information and application services.

Customer Service

We provide customer services through all channels on our integrated sales and distribution channel network. Our customer services typically include service inquiries, service applications, customers’ complaints, product and service promotions, service initiation and termination, payment reminder services and emergency services. Through establishing and implementing our customer full-service standard, we have significantly improved our basic customer services capability, such as service processing time, request responding time and providing service related and other information to customers through text messages.

In 2019, we propelled the construction of customer-oriented service system by continuously promotingAI-powered smart services and optimizing star-grade services, thereby realizing more prominent value of the services. Specifically, in respect of individual customers, we focused on the launch of 5G services with good users perception. We highlighted the usage scenarios from the customers’ perspective, benchmarked against industry leading practices, collected real experience perception from users, responded to customers’ questions to achieve persistent enhancement of 5G perception. In respect of household customers, we formulated and implemented the services standards for Smart Family applications and promoted the transformation from installation and maintenance services to the delivery of integrated solutions for household informatization. In respect of government and enterprise customers, we strengthened collaborative services of cloud-network integration and enhanced the timely installation rate and timely repair rate of business dedicated lines andend-to-end services for WiFi networking.

In 2019, we continued to maintain leading position in the industry in terms of overall user satisfaction and user satisfaction in handset Internet access according to the assessment conducted by the MIIT.

Information Technology System

We employ our information technology, or IT, system to support our voice services and other services. In recent years, through continuous upgrading, our IT system has the capability to offer full service support to our wireline, mobile and other services on an integrated basis and to support other services related operations such as account opening, billing and customer services.

Network System

Our network has extensive coverage and scale and employs a variety of advanced technologies and suitable architecture. It offers comprehensive functions and operates in a stable and reliable manner. In addition, it supports a comprehensive range ofend-to-end telecommunications services and enables customized products to be delivered for a variety of telecommunications needs. Our network system is managed and operated by our experienced network management and maintenance teams and is supported by our strong research and development capabilities. And in light of future advances in technology, we have formulated viable plans to migrate our network system efficiently to the next generation. Furthermore, we procure our network equipment and related maintenance and technical support mainly from a number of PRC and overseas telecommunications network equipment manufacturers and suppliers including Huawei Technologies, Ericsson, Nokia and ZTE Corporation, among others.

Network Architecture

Our network system consists of access networks, data networks, core networks, transport networks, service networks and support networks.

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Low frequency refarming

We obtained permits from the MIIT to refarm the 800MHz frequency resources and make use of the unoccupied frequency resources for 4G network construction. We have fully utilized the advantage in the coverage reach of the low frequency of 800MHz by rapidly completing the construction of 4G network in rural areas at a low cost, achieving nationwide full coverage of 4G network, as well as deepening the coverage and supplementing the bandwidth of 4G service in urban areas.

With the support of our nationwide coverage of 4G network, we have established aNB-IoT network with broad nationwide coverage and high quality to support development of the business ecosystems of the Company and our VoLTE network has begun commercialization.

Co-building andco-sharing of 5G network with China Unicom

In September 2019, following market principles, we entered into the 5G Cooperation Agreement with CUCL. Pursuant to the 5G Cooperation Agreement, we will cooperate with CUCL to jointlyco-build one 5G access network nationwide andco-share 5G spectrum resources while the 5G core network shall be respectively constructed by each party. Each party will continue to operate its business and branding independently and the subscribers will belong to each party respectively. In respect of settlement under the 5G Cooperation Agreement, based on the principle that parties shall not make a profit from such settlement, we and CUCL will formulate reasonable and precise settlement arrangement, following fair and equitable market practices, to maximize the benefits of cooperation for both parties and maintain a sustainable cooperation. We believe that the cooperation is beneficial to the efficient construction of 5G network and the reduction of network construction and maintenance costs while enhancing efficiency in network and assets operation, which enables us to rapidly create 5G service capability and strengthen network quality and business experience so as to achieve awin-win situation for both parties.

Equipment procurement

We purchase most of our network equipment from leading international and domestic suppliers. We purchase a variety of network equipment from domestic suppliers, such as transmission equipment and local switches. We make most of our purchases through competitive tenders primarily based on product and service quality, system compatibility and price.

Purchases from our five largest suppliers of telecommunications equipment accounted for approximately 28.2% of our total amount of annual purchases in 2019. Purchases from our single largest supplier of telecommunications equipment accounted for approximately 16.8% of our total amount of annual purchases in 2019.

Competition

Following the industry restructuring in 2008, China Unicom and our Company have full-service capabilities and compete with each other in both wireline and wireless telecommunications services. China Mobile continues to be the leading provider of mobile telecommunications services in the PRC and competes with us in mobile telecommunications services and other telecommunications services. In June 2019, the MIIT granted the 5G permit to China Telecom Group, China Mobile Group, Unicom Group and China Broadcasting Network. In December 2013 and May 2016, China Mobile and China Broadcasting Network, respectively, received a license from the MIIT to operate fixed-line businesses, leading to intensified competition in this sector.

Since the PRC’s accession to The World Trade Organization (the “WTO”), foreign operators have been permitted to gradually increase their investments in the telecommunications industry in the PRC. Like domestic service providers, foreign operators are subject to the licensing requirements of the MIIT. In addition, investments by foreign operators may not exceed limits set forth in the relevant laws and regulations with respect to the amount of investment and percentage of total ownership interests that foreign operators are permitted to make in telecommunications enterprises in the PRC. For example, the foreign ownership in basic telecommunications services will be subject to a limit of 49.0%, and the foreign ownership in value-added telecommunications services other thane-commerce services will be subject to a limit of 50.0% except in the pilot free trade zones in China. See “—Regulatory and Related Matters—Licensing” included elsewhere under this Item.

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We also face increasing competition from other competitors outside the telecommunications industry, in particular, from Internet services providers and mobile software and application developers, such asOver-the-Top messaging or voice services providers who offer contents and services on the Internet without their proprietary telecommunications network infrastructure. These competitors are competing with us in information and application or voice services. In recent years, the PRC Government has taken various initiatives to encourage competition in the telecommunications industry, such as the three-network convergence policy and the policy encouraging private capital to enter the industry, in addition to a series of guidance to such effect. Specifically, in May 2010, the PRC State Council issued Certain Opinion on Encouraging and Guiding the Sound Development of Private Investment, encouraging private investment in industry sectors that are mainly state-owned, such as basic telecommunications services. In June 2012, the MIIT issued Opinions on Encouraging and Guiding Private Investment in the Telecommunications Industry, encouraging private-sector investment in the telecommunications industry. On May 17, 2013, the MIIT issued the Trial Plan of Resale of Mobile Telecommunications Services, pursuant to which the MIIT would grant qualified companies mobile telecommunications resale business approvals on a pilot basis which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators or resell such services to customers. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunications Resale Business (关于移动通信转售业务批发价格调整的指导意见), pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar services of the mobile networks operators. On April 28, 2018, the MIIT issued the Circular on Commercialization of Mobile Telecommunications Resale Business (关于移动通信转售业务正式商用的通告), pursuant to which the MIIT granted commercial operation approval to the mobile communications resale business, effective from May 1, 2018. On November 11, 2019, the MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Printing and Publishing the Regulations on the Management of Mobile Number Portability Service. The Regulations on the Management of Mobile Number Portability Service (the “Portability Provisions”) became effective on December 1, 2019. The Portability Provisions specify that cellular mobile communication users (excluding the IoT users) within the same local network may apply to change the contracted fundamental service operator by keeping the same mobile numbers and users switched to the network have equal rights under the same conditions. In an effort to further encourage private-sector investment in the broadband network construction and business operation, as well as encourage private capital to enter into the telecommunications market through equity investment, the State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013 and Certain Opinion on Promoting Information Consumption and Stimulating Domestic Demand on August 8, 2013, and the MIIT also issued the Informatization Development Plan on September 29, 2013, the Notice on Opening the Broadband Access Market to Private Capital on December 25, 2014 and three more Notices on Further Broadening the Scope of Trial Opening of the Broadband Access Business on September 23, 2015, October 13, 2016 and September 27, 2017, respectively. By the end of 2019, the broadband access market opened up to private capital in 19 provinces in China on a province-wide basis and also in 32 pilot cities. As a result, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition. In April 2018, MIIT approved the commercialization of mobile telecommunications resale business, effective from May 2018. By the end of 2019, among the 42 mobile virtual network operators who had been approved by the MIIT to conduct resale business on a pilot basis, 38 of which had been granted commercial operation licenses; and the 25 companies who signed pilot agreements with us had been granted commercial licenses. As of December 31, 2019, there were a total of approximately 19.72 million users of mobile virtual network through resale business that is in cooperation with us.

Trademarks

We conduct our business under the “China Telecom” brand name and logo. Currently, China Telecom Group owns certain trademarks in the PRC, some of which have been registered with the former Trademark Office of the PRC State Administration for Industry and Commerce, or the Trademark Office, and some of which are in the process of being registered with the Trademark Office. China Telecom Group has executed a trademark license agreement with us. Under this agreement, China Telecom Group agreed to grant to us and our subsidiaries the right to use these trademarks upon the completion of the registration on a royalty-free basis until December 31, 2021, which is automatically renewable for three more years as the parties may agree. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group and its affiliated companies—Trademark License Agreement”.

Regulatory and Related Matters

Overview

The PRC’s telecommunications industry is subject to extensive government regulation. A number of central government authorities have regulatory responsibilities for various aspects of the telecommunications industry. These authorities primarily include:

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In order to provide a uniform regulatory framework to encourage the orderly development of the telecommunications industry, the PRC government is in the process of drafting a telecommunications law. We expect that, if and when the telecommunications law is adopted by the National People’s Congress or its Standing Committee, the highest state legislative body in the PRC, it will become the basic telecommunications statute and provide a regulatory framework for the telecommunications industry in the PRC.

On June 1, 2017, the Cyber Security Law came into force. It stipulates relevant rules for personal data security protection, new types of cybercrime and network real name system; it specifies the principle of cyberspace sovereignty, the security obligations of network products and services providers as well as the security obligations of network operators; and it further enhances the protection of personal data, establishes the framework for the protection of critical information infrastructure facilities, and establishes rules regulating cross-border transmission of key data via critical information infrastructure facilities. In addition, it provides for the punishment for foreign organizations and individuals that attack and destroy China’s critical information infrastructure facilities and establishes a system for monitoring, early warning and emergency response. Telecom operators shall comply with the requirements under the Cyber Security Law in respect of network operating security and network information security. In addition, the Measures for the Security Review of Network Products and Services (Provisional) became effective on June 1, 2017. The Cyber Security Law and the Measures for the Security Review of Network Products and Services (Provisional) require procurement of network products and services by operators in key industries and critical information infrastructure facilities that may have national security concerns to go through a cyber security review. Relevant government authorities responsible for the protection of critical information infrastructure facilities will decide on whether such procurement would threat national security pursuant to the review. The security review of telecommunications industry would be organized and conducted by the MIIT. The security review may be initiated by the enterprises or by the relevant government authorities. The security review would focus on the security and controllability of network products and services. Operators of critical information infrastructure facilities use network products or services that have not been subject to the security review or have not passed the security review, would subject to a fine of no less than one but no more than ten times of the amount of purchase. According to the Cyber Security Law, the CAC has a central role in planning, coordination, supervision, and management of network security measures while the MIIT, the Ministry of Public Security and other relevant authorities are in charge of network security protection, supervision and management within the scope of their respective responsibilities. Several related regulations, including the Measures for the Security Review of Network Products and Services (for Trial Implementation) and the Provisions for the Administration of Internet News Information Services, published by the CAC came into effect on the same day as the Cyber Security Law. The PRC government may amend the relevant regulations or promulgate new regulations to clarify and further implement the Cyber Security Law. Although we expect that the Cyber Security Law will have a positive effect on the overall development of the telecommunications industry and enhance information protection in the PRC, we currently cannot predict the scope of any specific requirements that may be imposed on us and their implications for our operations under the Cyber Security Law and relevant regulations. On January 1, 2018, the Measures for Monitoring and Management of Public Internet Cyber Security Threat issued by the MIIT came into force. It provided for the definition of public Internet cyber security threats, the relevant governing authorities, working principles and remedial measures in connection with the monitoring and management of public internet cyber security threats. Telecom operators are required to strengthen the monitoring and management of public Internet cyber security threats, notify the governing authorities in a timely manner after discovery of cyber security threats, and provide technical assistance to governing authorities in relation to inquiries into IP address attribution and domain name registration.

On May 1, 2018, the national standard on personal information protection, Information Security Technology—Personal Information Security Specification GB/T 35273-2017 (《信息安全技术-个人信息安全规范》(GB/T 35273-2017)), came into force. It provides specific examples on the scope and types of personal information and sensitive personal information; stipulates the basic principles on personal information security and regulates the collection, retention, use, sharing, transfer and public disclosure of personal information. It puts forward specific requirements on the methods and measures to handle personal information security incidents by personal information controllers, as well as the organization and management of personal information controllers. In addition, it provides implementation methods and privacy policy forms for the right of informed consent to be exercised.

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On November 28, 2019, the CAC, the MIIT, the Ministry of Public Security and the State Administration for Market Regulation of the PRC jointly formulated the Method for Identifying the Illegal Collection and Use of Personal Information by Applications. It explicitly sets out the specific methods of identifying six types of illegal behaviors, i.e. failure to publish the rules for collection and use; failure to expressly specify the purpose; method and scope of collection and use of personal information; collection and use of personal information without the user’s consent; violation of the essential rules to unnecessarily collect personal information which is not related to the service provided; provision of personal information to others without prior consent; and failure to provide the function of deleting or correcting personal information as required by law or failure to publish information in relation to complaint or whistleblowing methods. It serves as a reference for the regulatory authorities to identify the illegal collection and use of personal information by applications and provides guidance for the self-inspection and self-correction of application operators and the social supervision.

Telecommunications Regulations

The PRC’s State Council promulgated the Telecommunications Regulations, which became effective as of September 25, 2000 and were amended on July 29, 2014 and February 6, 2016, respectively, by the Decision of the State Council on Amending Certain Administrative Regulations. The Telecommunications Regulations are substantially consistent with, and are primarily intended to streamline and clarify, the then existing rules and policies for the telecommunications industry. The Telecommunications Regulations provide the primary regulatory framework for the PRC’s telecommunications industry in the interim period prior to the adoption of the telecommunications law.

The Telecommunications Regulations are intended to develop a transparent and fair regulatory environment to encourage fair and orderly competition and development in the telecommunications industry. The Telecommunications Regulations address all key aspects of telecommunications operations, including, among others, entry into the telecommunications industry, network interconnection, telecommunications resource allocation, tariffs and service standards.

Licensing

The Telecommunications Regulations adopt the existing regulatory distinction between basic and value-added telecommunications services, which are subject to different licensing requirements. On December 28, 2015, the MIIT promulgated the Telecommunications Service Catalog (2015 edition) which took effect on March 1, 2016 and was amended on June 6, 2019. Basic telecommunications services include, among others, wireline communications services, cellular mobile communications services, satellite communications services, data communications services, IP telephone services, trunking communications services, wireless paging services, network access facilities services, domestic communications facilities services and network hosting services. Value-added telecommunications services include, among others, IDC services, content distribution network services, domestic Internet virtual private network services, Internet access services, online data processing and transaction processing services, domestic multi-communication services, storage and forwarding services, call center services, information services and coding and procedures conversion services.

Providers of any basic telecommunications services as well as providers of value-added services in two or more provinces, autonomous regions and centrally administered municipalities in the PRC must apply for licenses from the MIIT. In accordance with the approval of the MIIT, we derive our exclusive rights to operate basic telecommunications business from our status as a subsidiary controlled by China Telecom Group, which holds the licenses required for operating the relevant telecommunications business. In December 2013, China Telecom Group, Unicom Group and China Mobile Group received permits from the MIIT to operate 4G services nationwide based onTD-LTE technology. We have been authorized by China Telecom Group to operate 4G services nationwide based onTD-LTE technology. On February 27, 2015, China Telecom Group was granted by the MIIT the permit, and authorized us, to provide 4G services based on LTE FDD technologies nationwide. In June 2019, China Telecom Group, our controlling shareholder, was granted the permit from MIIT to operate 5G digital cellular mobile service nationwide, and we have been authorized by China Telecom Group to develop 5G business nationwide.

After its accession to the WTO in December 2001, the PRC promulgated the Administrative Regulations on Telecommunications Companies with Foreign Investment, which became effective on January 1, 2002 and were subsequently amended in 2008 and 2016, implementing its commitments to the WTO. Those commitments include the gradual reduction of foreign ownership restrictions in the telecommunications industry and thestep-by-step opening of the telecommunications market in the PRC to foreign operators. According to those regulations, enterprises with foreign investment may operate basic and value-added telecommunications services subject to the approval of the MIIT and the Ministry of Commerce (formerly the Ministry of Foreign Trade and Economic Cooperation). Certain limitations have been placed on the total registered capital of, and maximum foreign shareholdings in, such enterprises. However, the presence or absence of foreign investments in an applicant for telecommunications licenses will presumably bear no direct relation to the decision on whether to issue licenses, inasmuch as the issuance of new licenses is governed by a separate set of rules and regulations. In recent years, the PRC gradually fulfilled the market-opening commitments it made to the WTO and lifted many restrictions for foreign investors and service providers in respect of telecommunications services.

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The remaining restrictions regarding mobile services, value-added telecommunications services and fixed line services are as follows:

The MIIT has promulgated the Administrative Measures for the Licensing of Telecommunications Business, which aims to strengthen the administration of licensing of telecommunications operations permits and became effective on September 1, 2017. It provides for the establishment of an integrated management platform for telecommunications business, the promotion of online application, approval and management of business license as well as publication, queries andco-sharing of related information, and enhancement of credit management by including credit conditions as a precondition to being granted a business license. The annual business license inspection system would be adjusted to a system of publication of annual reports and announcements. An illegal operations and dishonesty list for telecommunications operators would be established and maintained and the operators on such list would be subject to enhanced supervision from relevant telecommunications regulatory bodies. If a telecommunications business operator is requested by relevant telecommunications regulatory body to suspend operations, its business license is revoked or there are certain other circumstances as stipulated by the MIIT, such operator would be included in the dishonesty list and may not apply for telecommunications business license.

Pursuant to the Circular on the Framework Plan for the China (Shanghai) Pilot Free Trade Zone issued by the State Council on September 18, 2013, qualified foreign investment enterprises will be permitted to provide certain value-added telecommunications services in specific form in the China (Shanghai) Pilot Free Trade Zone, subject to protections on Internet information security and approval by the State Council is required in case of a breakthrough in the limitations provided for under the administrative regulations. In April 2014, to further promote the pilot program of the value-added telecommunications business in the China (Shanghai) Pilot Free Trade Zone, the MIIT issued the Administrative Measures for the Pilot Operation of the Value-added Telecommunications Business by Foreign Investors in China (Shanghai) Pilot Free Trade Zone.

Tariff Setting

Prior to May 10, 2014, under the Telecommunications Regulations, telecommunications tariffs were categorized into government fixed tariffs, government guidance tariffs and market based tariffs. The telecommunications providers were permitted to set tariffs for certain services provided the tariff levels were below the tariff ceilings set by the MIIT and the NDRC.

As a result of the governmental effort to gradually ease the regulations on the tariffs, on May 5, 2014, the MIIT and the NDRC issued the Notice on Implementing the Market Based Tariffs for Telecommunications Services. Pursuant to this Notice, effective from May 10, 2014, the government fixed tariffs and the government guidance tariffs were abolished and telecommunications operators are permitted to set the tariffs of all telecommunications services based on the cost and market conditions. The Telecommunications Regulations were subsequently amended on July 29, 2014 by the Decision of the State Council on Amending Certain Administrative Regulations to reflect this policy change as well as other amendments.

On May 20, 2015, the office of the State Council promulgated the Guidance Opinions Regarding Expediting the Development of the High-Speed Broadband Network and Promoting the Speed Upgrade and Tariff Reduction, calling for the telecommunications operators to reduce the data tariffs. In addition, the Government Work Report in 2017 calls for the deepening of speed upgrade and tariff reduction, the cancellation of domestic long distance and roaming fee for handsets users, the reduction of the tariff of Internet dedicated line access for small and medium enterprises and international long distance calls. Furthermore, the Government Work Report in 2018 calls for a further promotion of network speed upgrade and tariff reduction. We were encouraged to further reduce the average tariff of broadband for small and medium enterprise subscribers and the average data tariff of mobile network to a greater extent in 2019.

On August 23, 2018, the MIIT promulgated the Notice of Ministry of Industry and Information Technology on Further Regulating Marketing Activities for Telecommunications Tariff Schemes which became effective from August 23, 2018. The Notice encourages fundamental telecommunications enterprises to provide a tiered discount pricing formula for tariff plans according to the usage amount of the users and simplify the structure of tariff packages. In formulating and implementing the tariff plans of bundled packages, the tariff plans for each respective service should also be provided, and the tariff rates disclosure policy should be improved. When promoting the tariff plans, the telecommunications enterprises shall fulfill its obligation to remind the users with respect to matters they shall pay attention to, including the restrictive conditions, the validity period and the charging principles. The same type of users with the same transaction conditions should be guaranteed with equal rights to select the tariff plans.

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Interconnection

Under the Telecommunications Regulations and the Administrative Rules on Interconnection between the Public Telecommunications Networks promulgated by the MII in May 2001, as amended in September 2014, major telecommunications operators in the PRC cannot refuse requests for interconnection and must enter into interconnection agreements upon request by other service providers. Interconnection agreements must be reported to the MIIT. Telecommunications operators must ensure the smooth interconnection pursuant to the interconnection agreements as well as the applicable regulations and may not unilaterally terminate the interconnection.

The Telecommunications Regulations further provide that the technical standards and settlement methods for network interconnections be formulated by the MIIT. In accordance with these regulations, China Telecom Group has entered into various interconnection agreements with other telecommunications service providers, including China Mobile and China Unicom.

On December 30, 2013, the MIIT issued the Guidance Opinions on Building New National Internet Backbone Interconnection Points, pursuant to which seven new backbone interconnection points altogether have been built in Chengdu, Wuhan, Xi’an, Shenyang, Nanjing, Chongqing and Zhengzhou, in addition to the three existing backbone interconnection points in Beijing, Shanghai and Guangzhou. The operations of these new backbone interconnection points have significantly improved the quality and speed of interconnection between the telecommunications networks. On November 9, 2016, the MIIT approved the addition of new national Internet backbone interconnection points in Hangzhou, Fuzhou and Gui’an of Guiyang, achieving 13 Internet backbone interconnection points upon completion of such three new additions in June 2017. On December 30, 2019, the MIIT approved the addition of new Internet backbone interconnection point in Hohhot, which is currently under construction.

The MIIT issued the Notice on Public Telecommunications Network Interconnection Settlement and Relay Fees Allocation in October 2003 and two Notices on Adjustment to Settlement Standards for Interconnection Fees of Wireline Local Telephone Networks in October 2006 and April 2009, respectively, which provided for interconnection settlement arrangement standards for local inter-district calls between wireline local telephone operators as well as public telecommunications network. In November 2009, the MIIT issued the Notice on Adjustment to Settlement Standards for Interconnection Fees of Public Telecommunications Network and the Notice on the Settlement Standards for Interconnection Fees ofTD-SCDMA, which provided for adjustments to certain interconnections settlement standards between telecommunications operators. Effective from January 1, 2014, some of the settlement standards have been further adjusted pursuant to the Notice on Adjustment to Settlement Standards for Interconnection Fees of Public Telecommunications Network issued by the MIIT on December 17, 2013. Prior to January 1, 2014, when a mobile user of a basic telecommunications operator (excluding China Mobile’sTD-SCDMA 157 and 188 prefix numbers users) initiated a call to a mobile user of another basic telecommunications operator, the settlement charge was set uniformly at a rate of RMB0.06 per minute payable by the basic telecommunications operator originating the call to the basic telecommunications operator receiving the call. In the event a China Mobile’sTD-SCDMA 157 and 188 prefix numbers user initiated a call to a user of our Company or China Unicom within the scope of local network, China Mobile would pay a settlement charge of RMB0.012 per minute to our Company or China Unicom. With effect from January 1, 2014, when a mobile users of our Company or China Unicom initiates a call to a mobile user of China Mobile (not includingTD-SCDMA 157 and 188 prefix numbers users), the interconnection settlement charges payable by our Company or China Unicom to China Mobile is adjusted from then prevailing rate of RMB0.06 per minute to RMB0.04 per minute. Other existing voice interconnection settlement standards remain unchanged. Meanwhile, the SMS interconnection settlement standard is adjusted from RMB0.03 per message to RMB0.01 per message, and the MMS interconnection settlement standard is adjusted from RMB0.10 per message to RMB0.05 per message. The following table sets forth selected interconnection revenues sharing and settlement arrangements for local calls and domestic long distance calls:

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The following table sets forth selected current main interconnection revenues sharing and settlement arrangements for PSTN international long distance calls, including calls originated from and terminated in Hong Kong, Macau and Taiwan:

The following table sets forth selected current main interconnection revenues sharing and settlement arrangements for SMS:

The following table sets forth selected current main interconnection revenues sharing and settlement arrangements for MMS:

The interconnection settlement arrangement for the Internet backbone networks in China is the interconnection settlement through the network access points, or the NAPs, and backbone interconnection points. The price of NAP settlement is determined by the MIIT, and the price of backbone interconnection points is decided by the Internet backbone networks participants with reference to the NAP settlement standards. Since 2013, the MIIT reduced the interconnection settlement charges for the Internet backbone networks each year and the interconnection settlement charges for the NAPs was reduced by the MIIT to RMB80,000 per gigabyte per month starting from November 1, 2018. Theone-way payment of interconnection settlement charges for the Internet backbone networks between China Mobile Group and China Telecom Group or Unicom Group will be ceased and replaced by apeer-to-peer interconnection arrangement without settlement charges from July 1, 2020.

The MII promulgated the Measures on the Supervision and Administration of Quality of Service of the Public Telecommunications Networks, or the Measures on Quality of Service, effective August 1, 2005. The Measures on Quality of Service provide the supervision and administration of services of public telecommunications networks, including, among others, wireline local telephone networks, domestic long distance telephone networks, international telephone networks, IP telephone networks, land cellular mobile communication networks, satellite mobile communication networks, Internet backbone networks (access) and other telecommunications networks regulated by the MII. Under the Measures on Quality of Service, telecommunications operators are required to set up interconnection-related working units to be responsible for the management of quality of services of the public telecommunications networks.

Technical Standards

The MIIT sets industry technical standards for telecommunications terminal and interconnection related equipment used in the public telecommunications networks. A network access license from the MIIT and other relevant regulatory authorities is required for all such equipment. Most of the standards set by the MIIT conform to standards recommended by the International Telecommunications Union and other international telecommunications standards organizations.

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Telecommunications Resources

The MIIT is responsible for the administration and allocation of telecommunications resources in the PRC, including radio frequencies and telecommunications network numbers. The use of these resources by telecommunications service providers is subject to the approval of the MIIT or the relevant provincial communications administrations and a usage fee payable to the PRC government.

In 2019, we paid approximately RMB100 million of usage fees for the telecommunications network numbers and approximately RMB1,418 million of frequency usage fees, respectively.

Quality of Service

Under the Telecommunications Regulations, the MIIT and the relevant provincial communications administration have the responsibility of supervising and monitoring the quality of services provided by telecommunications service providers in the PRC. Under the Telecommunications Regulations, customers of telecommunications service providers have the right to submit complaints to the MIIT and the relevant provincial communications administration or other relevant government authorities.

On March 13, 2005, the MII promulgated the Telecommunications Services Standards which were amended in September 2014. The Telecommunications Services Standards aim to protect the rights of the customers of telecommunications services and sets forth minimum quality requirements for telecommunications services provided by telecommunications operators.

Under the PRC Consumer Protection Law, Consumers’ Associations can participate in the inspection and examination of goods and services by relevant governmental authorities; and customers can lodge their complaints with Consumers’ Associations, which can investigate the goods or services involved in the complaints, and mediate the complaints.

On December 28, 2016, the MIIT promulgated the Notice on Matters Relating to the Regulating of Telecommunications Services Agreements, effective on February 1, 2017, which specifies the standard of signing and record-keeping of telecommunication services agreements and emphasizes that the telecommunications operators should inform the subscribers and carry out remedial work when some or all of the terms under the telecommunications services agreements could not be observed due to force majeure or adjustment of national policies.

Universal Services

Under the Telecommunications Regulations, telecommunications service providers in the PRC are required to fulfill universal service obligations in accordance with relevant regulations promulgated by the PRC government, and the MIIT has been given authority by the PRC government to delineate the scope of its universal service obligations. The MIIT, together with other regulatory authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services. The State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013, which included the provision of broadband services to remote villages as part of the universal service obligations of telecommunications service providers and mentioned improving the compensation scheme for the expenses incurred in the “Broadband China” projects undertaken by telecommunications service providers in the villages. In addition, the Ministry of Finance of the PRC, or the MOF and the MIIT jointly issued the Notice of Implementation of Telecommunications Universal Services Pilot Work in December 2015, which provided that the telecommunications universal services should take a market-oriented approach and that the telecommunications universal services providers should be selected through a public bidding process. This notice sets up certain goals for the telecommunications operators, including broadband coverage in 98% of the administrative villages and over 12Mbps broadband access capacity in rural villages, by 2020. Pursuant to the notice, the central government subsidies will be granted to the pilot areas determined by the MOF and the MIIT and the universal services providers will be selected through an open bidding process.

The PRC government used financial resources to compensate the expenses incurred in the “Coverage to All Villages” and the “Broadband China” projects before the implementation of universal services pilot projects in 2016. We, together with other telecommunications operators, have undertaken the “Coverage to All Villages” project since 2004. Since 2016, we have undertaken universal services pilot projects in accordance with the requirements of the Chinese government and initially in aggregate won the bids to undertake and completed the construction of broadband networks in approximately 50,000 administrative villages. Since 2018, the PRC government included 4G network coverage into the scope of pilot projects for universal services. By the end of 2019, we had won the bids to undertake 4G base stations constructions in approximately 12,000 administrative villages in remote rural areas. We have continuously promoted the construction of communication networks in rural areas and remote rural villages and strives to improve the fixed line and wireless broadband Internet access capacities in rural areas. In addition, we have set up local service points for rural villages, actively promoted the development ofe-commerce in rural areas, and strived to contribute to the informatization upgrade and revitalization of rural areas in various regions. The compensation from the PRC government may not be sufficient to cover all of our expenses for providing the telecommunications universal services. However, we believe the expenses for such operation and maintenance will not have a material effect on our financial condition.

State-Owned Assets Supervision

Under the PRC Company Law, PRC Enterprise State-Owned Assets Law, Interim Measures for the Supervision and Administration of State-Owned Assets of the Enterprises, and other administrative regulations, the State-owned Assets Supervision and Administration Commission of the State Council, or the SASAC, among others, supervises the preservation of the value of state-owned assets, guides the reform and restructuring of state-owned enterprises, and evaluates the performance of management executives of state-owned enterprises through legal procedures. Our controlling shareholder, China Telecom Group, is a state-owned enterprise owned by the SASAC and subject to the SASAC’s supervision.

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Three-Network Convergence Policy

In January 2010, the PRC government announced its decision to accelerate the advancement of convergence of telecommunications, television broadcast and Internet access networks to realize interconnection and resourceco-sharing among the three networks and further develop the provision of voice, data, television and other services. Specifically, the three-network convergence policy would be initially carried out on a trial basis in selective geographic locations during the period from 2010 to 2012 and further implementedacross-the-board in the following three years. In June 2010, the State Council issued the Trial Plan for Three-Network Convergence and called for 12 regions (cities) and enterprises for the first trial. Following the completion of the first trial in December 2011, the State Council announced 42 additional regions (cities) for the second phase of the trial. In September 2012, we received the Information Network Communicated Audio-Video Program License from the State Administration of Press, Publication, Radio, Film and Television (the “SARFT”, formerly, the State Administration of Radio, Film and Television). In August 2015, the General Office of the State Council issued the Notice of Plan of Furthering the Three-Network Convergence, which marked the completion of the trial plan of the three-network convergence and called for further promotion of the three-network convergence nationwide.

Mobile Telecommunications Resale Business

On May 17, 2013, the MIIT issued the Trial Plan of Resale of Mobile Telecommunications Services, pursuant to which the MIIT would grant qualified companies mobile telecommunications resale business approvals on a pilot basis which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators or resell such services to customers. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunications Resale Business (关于移动通信转售业务批发价格调整的指导意见), pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar services of the mobile networks operators. On April 28, 2018, the MIIT issued the Circular on Commercialization of Mobile Telecommunications Resale Business, pursuant to which the MIIT granted commercial operation approval to mobile communication resale business, effective from May 1, 2018. For a series of government measures to encourage private capital to invest in telecommunications services that could compete with our services, see “Item 4. Information on the Company—B. Business Overview—Competition”.

VAT Reform Applicable to the Telecommunications Industry

On November 16, 2011, the MOF and the PRC State Administration of Taxation, or the SAT, introduced a pilot tax program under which the PRC business tax would be replaced with a VAT. On April 29, 2014, the MOF and the SAT announced that the pilot program would be extended to cover the telecommunications industry. Effective from June 1, 2014, the pilot tax rate for basic telecommunications services is 11% and the pilot tax rate for value-added telecommunications services is 6%. On March 18, 2016, the State Council standing committee meeting resolved to expand the VAT pilot program to all other industries which were previously subject to the PRC business tax starting from May 1, 2016. On March 23, 2016, the MOF and the SAT issued the Notice on Expanding the Pilot Program of Replacing the Business Tax with VAT, promulgating the relevant implementing rules. On April 4, 2018, the MOF and the SAT issued the Notice on Adjustment of VAT Rates pursuant to which the 11% VAT rate applicable to basic telecommunications services would be reduced to 10% and the 17% VAT rate applicable to sales of goods would be reduced to 16%, with effect from May 1, 2018. On March 20, 2019, the MOF, the SAT, the General Administration of Customs issued the Notice on Deepening the Policies Related to Value-Added Tax Reform, pursuant to which the 10% VAT rate applicable to basic telecommunications services would be reduced to 9% and the 16% VAT rate applicable to sales of goods would be reduced to 13%, with effect from April 1, 2019.

Sharing of Telecommunications Infrastructure

In April 2019, the MIIT and the SASAC jointly issued the 2019 Implementation Opinions of the Ministry of Industry and Information Technology and the State-owned Assets Supervision and Administration Committee of the State Council on Promoting the Joint Construction and Sharing of Telecommunications Infrastructure, or the Opinions. The Opinions require that the supporting facilities for base stations, such as the telecommunications towers, and the passive indoor distribution systems for key areas of public transportation and buildings, shall generally be coordinated with respect to construction needs, constructed and delivered by the Tower Company, except that certain facilities may be constructed by a telecommunications operator if serving only such operators’ demand. The Opinions also set forth the sharing requirements in the construction of FTTH infrastructure facilities. The construction of supporting facilities, such as transmission poles, pipelines, and equipment rooms, in newly-built residential and commercial properties must strictly observe the applicable national and local standards. Telecommunications operators are prohibited from entering into any agreement which contains exclusivity arrangement with commercial property owners, their agents and/or property management companies. Moreover, the existing telecommunications infrastructure (transmission poles, pipelines, base station sites, and equipment rooms, etc.) must beco-shared whenever conditions so allow, and new transmission poles or pipes covering the same operation routes must be jointly constructed by the operators.

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Anti-Unfair Competition Law

On April 23, 2019, the Standing Committee of the National People’s Congress (the “NPCSC”) promulgated the amended Anti-Unfair Competition Law of the People’s Republic of China (the “Anti-Unfair Competition Law”), which was formally implemented on the same day. The amendments to the Anti-Unfair Competition Law mainly involve the provisions regarding the trade secrets of intellectual property rights. First, the scope of trade secrets has been expanded through the incorporation of acatch-all description, which is no longer limited to “technical” or “business operation” information. Second, the scope of the trade secret infringer has been expanded. Apart from business operators, other natural persons, legal persons andnon-legal entities have been included in the scope of the subject of liability for trade secret infringement. Third, given the practical situation of evolving infringement means and conducts, it has been clarified that misappropriation of trade secrets through electronic intrusion or indirect means, such as instigating, inducing and aiding others to acquire the right holder’s trade secrets, will constitute trade secret infringement. Fourth, the penalty on trade secret infringement has been increased. Fifth, in relation to the allocation of burden of proof for trade secret infringement in the civil trial procedure, it stipulates that the right holder may only need to provide preliminary evidences which can prove that the right holder has taken confidentiality measures and can reasonably indicate that the trade secret has been infringed. The amendments to the Anti-Unfair Competition Law strengthened the protection of intellectual property rights in China and had a positive impact on the establishment of a fair market order and protection of the legitimate interests of the right holders.

Mobile Number Portability

On November 11, 2019, the MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Printing and Publishing the Regulations on the Management of Mobile Number Portability Service. The Regulations on the Management of Mobile Number Portability Service (the “Regulations”) became effective on December 1, 2019. The Regulations expressly allow the cellular mobile telecommunication users (excluding the users of Internet of Things) to apply for a change of the contracted fundamental business operator within the same local network area whilst retaining their phone numbers unchanged. Telecommunications business operators should strictly implement the relevant provisions on the real-name registration of users of mobile number portability service and ensure that the users whose mobile numbers have been transferred from other networks should be entitled to the same rights under the same conditions. Providing an important basis for the supervision and inspection of the telecommunications regulators, the Regulations explicitly require that in the course of providing the mobile number portability service telecommunications business operators should not engage in nine types of prohibited conducts including to refuse, prevent or delay the provision of mobile number portability service to users without justifiable reasons, to restrict the users from switching to another network by means of expanding the scope of the agreement in relation the terms of service, to affect the quality of telecommunications service provided to the mobile number portability service users through technical measures such as interception and restriction, to conduct a comparative promotion, fabricate or disseminate false or misleading information or discredit other telecommunication business operators when promoting the mobile number portability service and the relevant tariff plans, to design special tariff plans and marketing schemes for mobile number portability service users, continue to occupy the mobile numberstransferred-in while the users have exited the network and to hinder or disrupt the normal operation of mobile number portability service by means of handling the mobile number transfer maliciously on behalf of the users, making complaints maliciously on behalf of the users, etc..

E-Commerce Law

In August 2018, the NPCSC approved theE-Commerce Law of the People’s Republic of China, which was formally implemented on January 1, 2019. TheE-Commerce Law consists of seven chapters and eighty nine articles which further regulatee-commerce activities conducted by relevant parties includinge-commerce platform operators(“e-commerce platforms”). TheE-Commerce Law defines and confirms, for the first time, the obligation ofe-commerce platforms to protect the consumers’ security, and requires them to bear the corresponding responsibility when the obligation is breached. It further refines the regulation for the responsibility of intellectual property infringement on thee-commerce platforms, regulates the industrial and commercial registration and tax collection and management ofe-commerce operators, requirese-commerce operators to publish information when terminating transactions at their own discretion, prohibits fabricating transactions and user comments to defraud and mislead consumers, prohibits thee-commerce platforms from abusing the dominant market position to exclude and restrict competition, regulates the rules of deposits collection and refund, requests the products participating in bidding ranking with the results marked therein.

Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act of 1934, as amended. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. bynon-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

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As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates in 2019 that requires disclosure in this under Section 13(r) of the Exchange Act of 1934, as amended.

See “—A. History and Development of the Company—Organizational Structure” included elsewhere under this Item.

Properties

Executive Offices

Our principal executive offices are located in Beijing and we obtained the right to occupy and use these offices pursuant to an agreement we entered into with China Telecom Group in September 2002 and supplemental agreements on October 26, 2003, April 13, 2004, December 15, 2005, December 26, 2007, March 31, 2008, August 25, 2010, August 22, 2012, September 23, 2015 and August 20, 2018, respectively. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group and its affiliated companies—Centralized Services Agreement”.

Properties

We conduct our business on land and premises either owned by ourselves or leased from China Telecom Group and/or its affiliates and third parties. As to our owned properties, although the land and building titles to a majority of these properties have been registered in our name after they were acquired by us as part of our restructuring, land and building titles to the remaining properties are still registered in the name of China Telecom Group. China Telecom Group has agreed to indemnify us against any loss or damage incurred by us caused by or arising from any challenge to, or interference with, our right to use these properties. As to our leased properties, China Telecom Group has undertaken to us that it will indemnify us against any loss or damage caused by or arising from any challenge to, or interference with, such right. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group and its affiliated companies—Property Leasing Framework Agreement”.

None.

You should read the following discussion and analysis in conjunction with our audited consolidated financial statements and our selected financial data, in each case included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board. The information included in the following discussion and analysis provides details on the information for the years ended December 31, 2019 and December 31, 2018. Information related to the year ended December 31, 2017 has not been included and can be found on the Company’s previously filed annual report on Form20-F for the year ended December 31, 2018.

Our audited consolidated financial statements included elsewhere in this annual report reflect the disposal ofE-store, the establishment of Tianyi Capital and the acquisitions of the satellite communications business and Orange Insurance in 2017, the establishment of China Telecom Leasing Corporation Limited in 2018, and the establishments of China Telecom Finance, Smart Home Company and IoT Company in 2019, described under “Item 4. Information on the Company—A. History and Development of the Company—Disposal ofE-store and Establishment of Tianyi Capital”, “—Establishment of China Telecom Leasing Corporation Limited”, “—Establishment of China Telecom Group Finance Co., Ltd.”, “—Establishment ofE-surfing Smart Home Technology Co., Ltd.” and “—Establishment ofE-surfing Internet of Things Technology Co., Ltd.”.

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Overview

We are an integrated intelligent information service provider in the PRC. We offer a comprehensive range of telecommunications services, including Internet services, information and application services, voice services, telecommunications network resource and equipment services and other related services. We will continue to leverage our full-service capabilities to further enhance our integrated and differentiated development of operation of wireline, mobile and Internet services to achieve steady growth of our business.

Financial Overview

Our operating revenues decreased by 0.4%, from RMB377,124 million in 2018 to RMB375,734 million in 2019. The decrease was mainly attributable to revenues from voice services and others decreased. Our operating expenses decreased by 0.5% from RMB348,410 million in 2018 to RMB346,664 million in 2019. The decrease in operating expenses was primarily due to decreases in other operating expenses, network operations and support expenses as well as selling, general and administrative expenses. Our operating income in 2018 and 2019 was RMB28,714 million and RMB29,070 million, respectively. The profit attributable to equity holders of the Company decreased by 3.3%, from RMB21,210 million in 2018 to RMB20,517 million in 2019. The decrease was mainly attributable to theone-offafter-tax gain from the listing of Tower Company, which amounted to approximately RMB1.1 billion recognized by us in 2018.

The table below sets forth a breakdown of our operating revenues in terms of amount and as a percentage of our total operating revenues for the periods indicated:

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The following table sets forth a breakdown of our operating expenses in terms of amount and as a percentage of our total operating revenues for the periods indicated:

The following table sets forth our operating revenues, operating expenses, operating income and profit attributable to equity holders of the Company in terms of amount and as a percentage of our total operating revenues, and cash flows from operating activities for the periods indicated:

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations contained elsewhere in this annual report are based on our consolidated financial statements include elsewhere in this annual report which have been prepared in accordance with IFRS. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our consolidated financial statements. We base our assumptions and estimates on historical experience and on various other assumptions that we believe to be reasonable and which form the basis for making judgments about matters that are not readily apparent from other sources. On an ongoing basis, our management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our financial statements. Our principal accounting policies are set forth in detail in Note 3 to our consolidated financial statements included elsewhere in this annual report. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

Revenue from contract with customers (upon application of IFRS 15)

Under IFRS 15, we recognize revenue when (or as) a performance obligation is satisfied. i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognized over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met:

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As such, revenues from contracts with customers of telecommunications services, including voice, Internet, information and application and telecommunications network resource and equipment services, resale of mobile services (MVNO) and repair and maintenance of equipment are generally recognized over time during which the services are provided to customers.

Otherwise, revenue is recognized at a point in time when the customer obtains control of the distinct good or service. As such, revenues from sales of equipment are recognized at a point in time when the equipment is delivered to the customers and when the control over the equipment have been transferred to the customers.

A contract asset represents our right to consideration in exchange for goods or services that we have transferred to a customer but the right is conditioned on our future performance. A contract asset is transferred to accounts receivable when the right becomes unconditional. A contract asset is assessed for impairment in accordance with IFRS 9. In contrast, a receivable represents our unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents our obligation to transfer goods or services to a customer for which we have received consideration (or an amount of consideration is due) from the customer. When we receive an advance payment before the performance obligation is satisfied, this will give rise to a contract liability, until the operating revenues recognized on the relevant contract exceed the amount of the advance payment.

A contract asset and a contract liability relating to the same contract are accounted for and presented on a net basis.

Contracts with multiple performance obligations (including allocation of transaction price)

For contracts that contain more than one performance obligations, such as our direct sales of promotional packages bundling terminal equipment, e.g. mobile handsets, and the telecommunications services, we allocate the transaction price to each performance obligation on a relative stand-alone selling price basis.

The stand-alone selling price of the distinct good or service underlying each performance obligation is determined at contract inception. It represents the price at which we would sell a promised good or service separately to a customer. If a stand-alone selling price is not directly observable, we estimate it using appropriate techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of consideration to which we expect to be entitled in exchange for transferring the promised goods or services to the customer.

Over time revenue recognition: measurement of progress towards complete satisfaction of a performance obligation

The progress towards complete satisfaction of a performance obligation is generally measured based on output method, which is to recognize revenue on the basis of direct measurements of the value of the goods or services transferred to the customer to date relative to the remaining goods or services promised under the contract.

Principal versus agent

When another party is involved in providing goods or services to a customer, we determine whether the nature of our promise is a performance obligation to provide the specified goods or services ourselves (i.e. we are a principal) or to arrange for those goods or services to be provided by the other party (i.e. we are an agent).

We are a principal if we control the specified good or service before that good or service is transferred to a customer.

We are an agent if our performance obligation is to arrange for the provision of the specified good or service by another party. In this case, we do not control the specified good or service provided by another party before that good or service is transferred to the customer. When we act as an agent, we recognize revenue in the amount of any fee or commission to which we expect to be entitled in exchange for arranging for the specified goods or services to be provided by the other party.

Consideration payable to a customer

Consideration payable to a customer includes cash amounts that we pay, or expect to pay, to the customer, and also includes credit or other items that can be applied against amounts owed to us. We account for such consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service that the customer transfers to us and the fair value of the good or service received from the customer can be reasonably estimated.

Certain subsidies payable to third party agent incurred by us in respect of customer contracts, which will be ultimately enjoyed by end customers, and other subsidies incurred by us directly payable to our customers, are qualified as consideration payable to a customer and accounted for as a reduction of operating revenues.

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Incremental costs of obtaining a contract

Incremental costs of obtaining a contract are those costs that we incur to obtain a contract with a customer that we would not have incurred if the contract had not been obtained.

Certain commissions incurred by us paid or payable to third party agents, whose selling activities result in customers entering into sale agreements for our telecommunications services, are qualified as incremental costs. We recognize such costs as an asset, included in other assets, if we expect to recover these costs. The asset so recognized is subsequently amortized to profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate.

We apply the practical expedient of expensing all incremental costs to obtain a contract if these costs would otherwise have been fully amortized to profit or loss within one year.

Costs to fulfill a contract

When we incur costs to fulfill a contract, we first assess whether these costs qualify for recognition as an asset in terms of other relevant standards, failing which we recognize an asset for these costs only if they meet all of the following criteria:

The asset so recognized is subsequently amortized to profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. The asset is subject to impairment review.

Revenue recognition (prior to January 1, 2018)

Before the application of IFRS 15, our revenue recognition methods were as follows:

Revenue from information and application services in which no third party service providers are involved, such as caller display and Internet data center services, are presented on a gross basis. Revenues from all other information and application services are presented on either gross or net basis based on the assessment of each individual arrangement with third parties. The following factors indicate that we are acting as principal in the arrangements with third parties:

If majority of the indicators of risks and responsibilities exist in the arrangements with third parties, we are acting as a principal and have exposure to the significant risks and rewards associated with the rendering of services or the sale of applications, and revenues for these services are recognized on a gross basis. If majority of the indicators of risks and responsibilities do not exist in the arrangements with third parties, we are acting as an agent, and revenues for these services are recognized on a net basis.

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We offer promotional packages, which involve the bundled sales of terminal equipment, i.e. mobile handsets, and telecommunications services, to customers. The total contract consideration of a promotional package is allocated to revenues generated from the provision of telecommunications services and the sales of terminal equipment using the residual method. Under the residual method, the total contract consideration of the arrangement is allocated as follows: the undelivered component, which is the provision of telecommunications services, is measured at fair value, and the remainder of the contract consideration is allocated to the delivered component, which is the sales of terminal equipment. We recognize revenues generated from the delivery and sales of the terminal equipment when the title of the terminal equipment is passed to the customers whereas revenues generated from the provision of telecommunications services are recognized based upon the actual usage of such services.

Accounting for goodwill and long-lived assets

Depreciation. Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets after taking into account their estimated residual value. The following estimated useful lives are used for depreciation purposes. These estimated useful lives are based on our historical experience with similar assets and take into account anticipated technological changes.

We review the estimated useful lives of the assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

Impairment. The carrying amounts of long-lived assets, including property, plant and equipment,right-of-use assets, intangible assets with finite useful lives, construction in progress and contract costs included in other assets are reviewed periodically in order to determine whether there is any indication of impairment. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. For goodwill, the impairment testing is performed annually at each year end.

Before we recognize an impairment loss for assets capitalized as contract costs under IFRS 15, we assess and recognize any impairment loss on other assets related to the relevant contracts in accordance with applicable standards. Then, impairment loss, if any, for assets capitalized as contract costs is recognized to the extent the carrying amounts exceeds the remaining amount of consideration that we expect to receive in exchange for related goods or services less the costs which relate directly to providing those goods or services that have not been recognized as expenses. The assets capitalized as contract costs are then included in the carrying amount of the cash-generating unit to which they belong for the purpose of evaluating impairment of that cash-generating unit.

The recoverable amount of an asset or a cash-generating unit is the greater of its fair value less costs of disposal and value in use. The recoverable amount of a tangible and an intangible asset is estimated individually. When an asset does not generate cash flows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash generating unit). In determining the value in use, expected future cash flows generated by the assets are discounted to their present value using apre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. The goodwill arising from a business combination, for the purpose of impairment testing, is allocated to cash generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment loss is recognized as an expense in profit or loss. Impairment loss recognized in respect of cash-generating units is allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

We assess at the end of each reporting period whether there is any indication that an impairment loss recognized for an asset in prior years may no longer exist. An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down cease to exist, is recognized as an income in profit or loss. The reversal is reduced by the amount that would have been recognized as depreciation and amortization had the write-down not occurred. An impairment loss in respect of goodwill is not reversed.

For the year ended December 31, 2019, no provision for impairment losses were made against the carrying value of long-lived assets. For the year ended December 31, 2018, no provision for impairment losses were made against the carrying value of long-lived assets. For the year ended December 31, 2017, provision for impairment losses of RMB10 million were made against the carrying value of long-lived assets.

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Provision of expected credit losses (“ECL”) for accounts receivable

We use provision matrix to calculate ECL for the accounts receivable. The provision rates are based on customer’s past history of making payments when due and current ability to pay by groupings of various debtors that have similar loss patterns. The provision matrix is based on our historical default rates taking into consideration reasonable and supportable forward-looking information that is available without undue cost or effort. The historical observed default rates are reassessed annually, and changes in the forward-looking information are considered. In addition, accounts receivable with significant balances and credit-impaired are assessed for ECL individually.

Recently Issued International Financial Reporting Standards

Up to the date of issue of our 2019 financial statements, the International Accounting Standards Board has issued the following new and amendments to standards which are not yet effective and not early adopted for the annual accounting period ended December 31, 2019:

In addition to the above new and amendments to standards, a revised Conceptual Framework for Financial Reporting was issued in 2018. Its consequential amendments, the Amendments to References to the Conceptual Framework in IFRS Standards, will be effective for annual periods beginning on or after January 1, 2020.

We are in the process of making an assessment of the impact that will result from adopting the new and amendments to standards issued by the International Accounting Standards Board, or IASB, which are not yet effective for the accounting period ended on December 31, 2019. So far we believe that the adoption of these new and amendments to standards is unlikely to have a significant impact on our financial position and the results of operations.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Operating Revenues

Our operating revenues decreased by RMB1,390 million, or 0.4% from RMB377,124 million in 2018 to RMB375,734 million in 2019. This decrease was primarily the results of our revenues from voice services and others decreased, which was partially offset by the revenue growth of Internet services, information and application services and telecommunications network resource and equipment services.

Voice Services.Revenues from our voice services decreased by 11.1% from RMB50,811 million in 2018 to RMB45,146 million in 2019, representing 12.0% of our operating revenues in 2019. Among such revenues, revenues from our wireline voice services decreased by 6.6% from RMB19,723 million in 2018 to RMB18,425 million in 2019 and revenues from our mobile voice services decreased by 14.0% from RMB31,088 million in 2018 to RMB26,721 million in 2019. The decrease in revenue from our voice services was primarily due to the effect of the mobile Internet services, such asOver-the-Top messaging services, as alternative means of communication.

Internet Services. Revenues from our Internet services increased by 3.3% from RMB190,871 million in 2018 to RMB197,244 million in 2019, representing 52.5% of our operating revenues in 2019. This increase was primarily due to our enhanced efforts in strengthening ecological cooperation, and enhanced differentiation market competitiveness of convergence operation to continuously expand the subscriber base, driven by mobile Internet traffic. The number of our mobile subscribers continue to rise. As of December 31, 2019, the number of our mobile subscribers increased to 335.6 million, ranking second in Chinese telecommunications industry. The revenues attributable to mobile handset Internet access was RMB123,203 million in 2019, representing an increase of 10.8% from 2018. In addition, the number of our wireline broadband subscribers increased to 153.1 million as of December 31, 2019, representing an increase of approximately 7.3 million, or 5.0%, from 145.8 million as of December 31, 2018. Due to intensified market competition, the wireline broadband revenue was RMB68,413 million in 2019, representing a decrease of 7.9% from RMB74,262 million in 2018.

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Information and Application Services.Revenues from our information and application services increased by 5.0% from RMB83,478 million in 2018 to RMB87,623 million in 2019, representing 23.3% of our operating revenues in 2019. This increase was primarily due to the rapid growth of our emerging business such as IDC, cloud, IoT and Internet Finance services.

Telecommunications Network Resource and Equipment Services. Revenues from our telecommunications network resource and equipment services increased by 8.7% from RMB20,211 million in 2018 to RMB21,978 million in 2019, representing 5.9% of our operating revenues in 2019. This increase was primarily due to the growth in revenues from digital circuit service andIP-VPN service.

Others. Other revenues decreased by 25.2% from RMB31,753 million in 2018 to RMB23,743 million in 2019, representing 6.3% of our operating revenues in 2019. The decrease in other revenues was primarily due to the decrease in the scale of mobile terminals sold.

Operating Expenses

Our operating expenses decreased by 0.5% from RMB348,410 million in 2018 to RMB346,664 million in 2019. The decrease in operating expenses was primarily due to decreases in network operations and support expenses, selling, general and administrative expenses, and other operating expenses, which were partially offset by the increases in depreciation and amortization, and personnel expenses.

Depreciation and Amortization. Our depreciation and amortization expenses increased by 16.8% from RMB75,493 million in 2018 to RMB88,145 million in 2019. The depreciation and amortization expenses as a percentage of our operating revenues increased from 20.0% in 2018 to 23.5% in 2019. This is primarily attributable to depreciation ofright-of-use assets, other than leasehold land, amounted to RMB11,611 million, which was recognized upon the application of International Financial Reporting Standard 16 (“New Lease Standard”) in 2019, and our capital expenditures properly maintained at a relatively high level for strengthening our network competitiveness advantage in recent years.

Network Operations and Support Expenses.Our network operations and support expenses decreased by 5.4% from RMB116,062 million in 2018 to RMB109,799 million in 2019. This is mainly attributable to the decrease in expenses related to operating lease arrangements upon the application of the New Lease Standard in 2019. Expenses related to operating lease arrangements were recognized in the form of depreciation ofright-of-use assets and interest expenses of lease liabilities according to the New Lease Standard. The decrease in network operations and support expenses was partially offset by the increase in expenses due to the Company’s persistent efforts in maintaining network quality to support rapid development of emerging businesses and thus resulting in appropriate increase in operating and maintenance expenses.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased by 3.5% from RMB59,422 million in 2018 to RMB57,361 million in 2019. The selling expenses were RMB48,472 million in 2019, representing an decrease of 4.6% from 2018, primarily due to our continuous efforts in optimizing sales and marketing model, reinforcing the precise management of sales and marketing resources resulting in enhancement of the effectiveness of sales and marketing resources. Our general and administrative expenses were RMB8,889 million in 2019, representing an increase of 3.0% from 2018, primarily due to our increased research and development expenditure to promote high-quality development and strengthen the building of core capabilities.

Personnel Expenses. Personnel expenses increased by 6.4% from RMB59,736 million in 2018 to RMB63,567 million in 2019, primarily due to the increased incentives for high-tech talents and frontline employees. The personnel expenses as a percentage of our operating revenues increased from 15.8% in 2018 to 16.9% in 2019.

Other Operating Expenses. Our other operating expenses primarily consist of interconnection charges, cost of goods sold, donations and other expenses. Our other operating expenses were RMB27,792 million in 2019, which decreased by 26.3% from RMB37,697 million in 2018. The decrease was primarily due to the decrease in the cost of mobile terminals sold, which is commensurate with the decreased sales of such goods.

Net Finance Costs

Our net finance costs increased by 34.4% from RMB2,708 million in 2018 to RMB3,639 million in 2019. This is primarily attributable to interest expense on lease liabilities amounted to RMB1,607 million, which was recognized upon the application of the New Lease Standard in 2019, and partially offset by appropriate increase in the allocation of bond products with favorable costs and continued to improve the capabilities of internal capital centralization, effectively controlling the scale of indebtedness and financing costs, and further enhancing the capital turnover rate and utilization efficiency.

The net exchange loss was RMB41 million in 2019, compared to a net exchange gain of RMB79 million in 2018, which was primarily due to fluctuation of the Renminbi exchange rate against the U.S. dollars in 2019. According to the exchange rates published by the People’s Bank of China on December 31, 2019, the exchange rate of Renminbi depreciated by 1.6% against the U.S. dollars from December 28, 2018.

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Income Tax

In 2019, our income tax expense was RMB6,322 million with an effective tax rate of 23.4%. Our expected income tax expense at our statutory tax rate of 25.0% in 2019 would be RMB6,759 million. The difference between our effective income tax rate and the statutory income tax rate was primarily due to the low tax rates enjoyed by some subsidiaries and some branches located in the western region of China and the preferential income tax policies enjoyed by us such as additional tax deduction on expenses for research and development proactively implemented by us. Furthermore, our income from investments in associate company, Tower Company, is not subject to income tax in the current year. See Note 31 to our consolidated financial statements included elsewhere in this annual report for further details in respect of the reconciliation of the expected tax expense with the actual tax expense.

Profit Attributable to Equity Holders of the Company

As a result of the foregoing, the profit attributable to equity holders of the Company was RMB20,517 million in 2019, representing a decrease of 3.3% from the profit attributable to equity holders of the Company of RMB21,210 million in 2018.

Cash Flows and Working Capital

The following table summarizes our cash flows for the periods indicated:

Cash and cash equivalents increased by 24.8% from RMB16,666 million as of December 31, 2018, of which 64.0% was denominated in RMB, to RMB20,791 as of December 31, 2019, of which 78.0% was denominated in RMB. Our net cash inflow was RMB4,098 million in 2019, as compared with the net cash outflow of RMB2,939 million in 2018.

Our principal source of liquidity is net cash inflow from operating activities, which was RMB112,600 million in 2019, an increase of RMB13,302 million from RMB99,298 million of net cash inflow in 2018, primarily because the principal portion of the rental expenses paid was classified from operating activities to financing activities, which is a structural adjustment due to the application of the New Lease Standard.

Net cash outflow used in investing activities decreased by RMB8,740 million from RMB85,954 million in 2018 to RMB77,214 million in 2019, primarily attributable to the maturity of our certain short-term bank deposit investments.

Net cash outflow used in financing activities was RMB31,288 million in 2019 compared to RMB16,283 million in 2018, primarily because part of the cash outflow from operating activities was reflected in the financing activities upon the application of the New Lease Standard, and we repaid part of our interest-bearing debt in 2019.

Our working capital (defined as current assets minus current liabilities) was a deficit of RMB191,479 million as of December 31, 2019, representing an increase of deficit of RMB5,564 million, compared to a deficit of RMB185,915 million as of December 31, 2018. It was mainly due to the recognition of lease liabilities as a result of the application of the New Lease Standard.

We estimate that our current cash and cash equivalents, together with our existing credit facilities from domestic commercial banks, cash flows from operating activities, as well as funds available from short-term and long-term bank borrowings and debt financing, will be sufficient to satisfy our future working capital requirements and capital expenditures through the end of 2020. We have established and maintained high credit ratings in domestic major financing markets, which have facilitated our ability to obtain short-term and long-term credit on favorable terms to meet our financing requirements. As of December 31, 2019, we had unutilized credit facilities of RMB245,847 million with major domestic commercial banks, from which we can draw upon.

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Indebtedness

Our indebtedness as of the dates indicated was as follows:

Our total debt decreased by RMB16,722 million from RMB95,744 million as of December 31, 2018 to RMB79,022 million as of December 31, 2019, primarily because we continued to strengthen our intensive management of interest-bearing debt, refinedday-to-day management and control, effectively improved the efficiency of capital spending, and reduced the amount of interest-bearing debt outstanding. Ourdebt-to-asset ratio (total debt divided by total assets) decreased from 14.4% as of December 31, 2018 to 11.2% as of December 31, 2019. We believe that our Company has maintained a solid capital structure.

Our short-term debt constituted 53.8% of our total debt as of December 31, 2019. The weighted average interest rate of our short-term debt was 2.9% as of December 31, 2019, representing a decrease of 0.3 percentage point from that as of December 31, 2018.

Our long-term debt (including current portion) decreased from RMB45,991 million as of December 31, 2018 to RMB36,495 million as of December 31, 2019.

Of our total debt as of December 31, 2019, 99.4%, 0.4% and 0.2% were denominated in Renminbi, U.S. dollars and Euros, respectively, and 82.9% and 17.1% were with fixed interest rate and floating interest rate, respectively.

Our short-term and long-term debt does not contain any financial covenants which materially restrict our operations.

Capital Expenditure

The following table sets forth our historical and planned capital expenditure requirements for the periods indicated. Actual future capital expenditures for the period after December 31, 2019 may differ from the amounts indicated below.

In 2019, we continued to optimize network experience, deploying targeted coverage and dynamic capacity expansion for 4G network resulting in strengthening of the comprehensive competitive advantage of networks. At the same time, we promoted the construction of 5G network to gear up the potential for the future development of 5G. In 2019, our capital expenditure was RMB77,557 million, an increase of 3.5% from RMB74,940 million in 2018.

Our capital expenditure for 2020 is expected to be approximately RMB85,000 million. We expect to invest RMB45,300 million in 5G networks developments with the target to construct 140,000 base stations independently. By the end of 2020, with another 110,000co-shared base stations with CUCL, we expect to realize national 5G coverage in all prefecture-level cities, certain key counties and developed townships. The remaining budget is expected to be mainly used for cloud computing, data centers, informatization applications, and expansion and upgrade of existing network facilities.

Capital Resources

The main sources of our capital resources are cash generated from operating activities, bank borrowings and other indebtedness. We expect that we will have sufficient funding sources to meet our capital resources requirements in the future.

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Our emphasis on research and development has contributed to the development of our advanced network, system, and the rollout of our new applications and services. Our researchers focus on network planning and support, new technology trials, market evaluation, investment-related financial analysis and other key areas. Specific areas of research include 5G mobile communications technology, ultra-high-speed optic fiber transmission technology, cloud computing, Big Data, AI or artificial intelligence technology, IoT, broadband access, operation and service support systems and development of value-added services.

Please also refer to our discussion in each section of “—Overview” and “—A. Operating Results” included elsewhere under this Item.

As of December 31, 2019, we did not have anyoff-balance sheet arrangements or guarantees.

The following table sets forth our contractual obligations as of December 31, 2019:

Directors and Senior Officers

Pursuant to our Articles of Association, our Directors must be elected by our shareholders at a general meeting. Our Directors are generally elected for a term of three years and may serve consecutive terms if re-elected. The term of office for the current sixth session of the Board is three years, starting from May 23, 2017 until the date of the Company’s annual general meeting for the year 2019 expected to be held on May 26, 2020 (“2019 AGM”), upon which the seventh session of the Board will be elected. The Board has proposed tore-elect the current Directors, Mr. Ke Ruiwen, Mr. Chen Zhongyue, Mr. Liu Guiqing, Madam Zhu Min, Mr. Wang Guoquan and Mr. Chen Shengguang as Directors of the seventh session of the Board; and tore-elect Mr. Tse Hau Yin, Aloysius, Mr. Xu Erming, Madam Wang Hsuehming and Mr. Yeung Chi Wai, Jason as Independent Directors of the seventh session of the Board. Meanwhile, the Board will also propose to seek the approval of the shareholders of the Company to elect Mr. Li Zhengmao, the President and Chief Operating Officer of the Company and Mr. Shao Guanglu, respectively as Executive Directors of the seventh session of the Board at the 2019 AGM . As of December 31, 2019, the Board comprised eleven Directors with six Executive Directors, oneNon-Executive Director and four IndependentNon-Executive Directors. Our Board currently consists of ten Directors with five Executive Directors, oneNon-Executive Director and four IndependentNon-Executive Directors.

On March 4, 2019, Mr. Yang Jie resigned from his positions as an Executive Director, Chairman and Chief Executive Officer of the Company due to change in work arrangement.

On March 8, 2019, the Board resolved to approve Mr. Ke Ruiwen, an Executive Director, the then President and Chief Operating Officer of the Company, to performing the functions of the Chairman and Chief Executive Officer of the Company.

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On March 11, 2019, Mr. Wang Guoquan was appointed as an Executive Vice President of the Company.

On May 22, 2019, Mr. Ke Ruiwen, an Executive Director, the then President and Chief Operating Officer of the Company, was appointed as the Chairman and Chief Executive Officer of the Company.

On August 19, 2019, Mr. Liu Guiqing and Mr. Wang Guoquan, Executive Vice Presidents of the Company, were appointed as Executive Directors of the Company at the extraordinary general meeting of the Company.

On January 17, 2020, Mr. Gao Tongqing resigned from his positions as an Executive Director and Executive Vice President of the Company due to change in work arrangement.

On March 23, 2020, Mr. Li Zhengmao was appointed as the President and Chief Operating Officer of the Company and on the same date, Mr. Ke Ruiwen, an Executive Director, Chairman and Chief Executive Officer of the Company, ceased to act as the President and Chief Operating Officer of the Company.

The following table sets forth certain information concerning our current Directors and executive officers. The business address of each of our Directors and executive officers is 31 Jinrong Street, Xicheng District, Beijing, PRC 100033.

Ke Ruiwen, age 56, is an Executive Director, the Chairman of the Board and Chief Executive Officer of the Company, joined the Board of the Company in May 2012. Mr. Ke obtained a doctorate degree in business administration (DBA) from the ESC Rennes School of Business. Mr. Ke served as Deputy Director General of Jiangxi Posts and Telecommunications Administration, Deputy General Manager of Jiangxi Telecom, Managing Director of the Marketing Department of the Company and China Telecommunications Corporation, General Manager of Jiangxi Telecom, Managing Director of the Human Resources Department of the Company and China Telecommunications Corporation, Executive Vice President, President and Chief Operating Officer of the Company, Vice President and President of China Telecommunications Corporation and the Chairman of Supervisory Committee of China Tower Corporation Limited. He is also the Chairman of China Telecommunications Corporation. Mr. Ke has extensive experience in management and the telecommunications industry.

Li Zhengmao, age 57, is the President and Chief Operating Officer of the Company, graduated from Sichuan University with a major in radio electronics and received a master degree in radio technology from Chengdu Telecommunications Engineering Institute and a doctorate degree in communication and electronic system of radio engineering from Southeast University. Mr. Li served as an Executive Director and Vice President of China Unicom Limited, a Director and Vice President of China United Telecommunications Corporation, a Vice President of China Mobile Limited which is listed on the Main Board of the HKSE, a Vice President and General Counsel of China Mobile Communications Group Co., Ltd. and a Director and Vice President of China Mobile Communication Co., Ltd., aNon-Executive Director of China Communications Services Corporation Limited which is listed on the Main Board of the HKSE and a Vice Chairman of True Corporation Public Company Limited which is listed on the Stock Exchange of Thailand. Mr. Li is also a Director and the President of China Telecommunications Corporation. Mr. Li has extensive experience in management and the telecommunications industry.

Chen Zhongyue, age 48, is an Executive Director and Executive Vice President of the Company and joined the Board of the Company in May 2017. Mr. Chen received a bachelor degree from Shanghai International Studies University, a master degree in economics from Zhejiang University and an executive master of business administration (EMBA) from Xiamen University. Mr. Chen served as Deputy General Manager of China Telecom Zhejiang branch, Managing Director of the Public Customers Department of the Company and China Telecommunications Corporation and General Manager of China Telecom Shanxi branch. He is also a Vice President of China Telecommunications Corporation. Mr. Chen has extensive experience in management and the telecommunications industry.

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Zhang Zhiyong, age 54, was appointed as an Executive Vice President of the Company on July 10, 2018. Mr. Zhang is a senior engineer. He graduated from the Changchun Institute of Posts and Telecommunications with a bachelor degree in radio engineering. He also received a master degree in control engineering from Yanshan University and a master of management degree from BI Norwegian School of Management. Mr. Zhang served as Managing Director of the Sideline Industrial Management Department of China Telecommunications Corporation, President and Executive Director of China Communications Services Corporation Limited which is listed on the Main Board of the HKSE, General Manager of Xinjiang branch and Beijing branch of China Telecom Corporation Limited. He is also a Vice President of China Telecommunications Corporation, the Chairman of the board of directors and an Executive Director of China Communications Services Corporation Limited and aNon-Executive Director of China Tower Corporation Limited, both are listed on the Main Board of the HKSE. Mr. Zhang has extensive experience in management and the telecommunications industry.

Liu Guiqing, age 53, is an Executive Director and Executive Vice President of the Company, joined the Board of the Company in August 2019. Mr. Liu is a professor-level senior engineer. He received a doctorate degree in engineering science from National University of Defense Technology. Mr. Liu served as Deputy General Manager and General Manager of China Unicom Hunan branch and General Manager of China Unicom Jiangsu provincial branch. He is also a Vice President of China Telecommunications Corporation. Mr. Liu has extensive experience in management and the telecommunications industry.

Zhu Min, age 55, is an Executive Director, Executive Vice President, Chief Financial Officer and Secretary of the Board and joined the Board of the Company in October 2018. Madam Zhu is a senior accountant. She received a master degree in system engineering from the Faculty of Management Engineering at the Beijing Institute of Posts and Telecommunications and a doctorate degree in business administration from the Hong Kong Polytechnic University. Madam Zhu served as Managing Director of Finance Department of China Telecom (Hong Kong) Limited, Managing Director of Finance Department of China Mobile (Hong Kong) Group Limited, Deputy Chief Financial Officer and Managing Director of Finance Department of China Mobile Limited, which is listed on the Main Board of the HKSE, Director General of Finance Department of China Mobile Communications Corporation, Deputy Chief Accountant and Director General of Finance Department of China Mobile Communications Group Co., Ltd. and a Director of Shanghai Pudong Development Bank Co., Ltd., which is listed on the Shanghai Stock Exchange. She is currently the Chief Accountant of China Telecommunications Corporation. Madam Zhu has extensive experience in finance, management and the telecommunications industry.

Wang Guoquan, age 47, is an Executive Director and Executive Vice President of the Company and joined the Board of the Company in August 2019. Mr. Wang received an executive master degree of business administration (EMBA) from Business School, Renmin University of China. Mr. Wang served as Deputy General Manager and General Manager of the China Telecom Hebei branch, General Manager of the Marketing Department of China Telecommunications Corporation and a director of Besttone Holding Co., Ltd., which is listed on the Shanghai Stock Exchange. He is also a Vice President of China Telecommunications Corporation. Mr. Wang has extensive experience in management and the telecommunications industry.

Chen Shengguang, age 56, is aNon-Executive Director of the Company and joined the Board of the Company in May 2017. Mr. Chen graduated from Zhongnan University of Economics with a major in finance and accounting, and obtained a postgraduate degree in economics from Guangdong Academy of Social Sciences and a master degree in business administration (MBA) from Lingnan College of SunYat-sen University. Mr. Chen is currently the Director and General Manager of Guangdong Rising Assets Management Co., Ltd. (one of the domestic shareholders of the Company). Mr. Chen served as the Manager of Finance Department and Deputy General Manager of Guangdong Foreign Trade Import & Export Corporation, Head of Finance Department, Assistant to General Manager and Chief Accountant of Guangdong Guangxin Foreign Trade Group Co., Limited, a Director of FSPGHi-Tech Co., Ltd. which is listed on the Shenzhen Stock Exchange, aNon-Executive Director of Xingfa Aluminium Holdings Limited which is listed on the Main Board of the HKSE, a Director of GuangdongSilk-Tex Group Co., Ltd., the Chief Accountant and Deputy General Manager of Guangdong Guangxin Holdings Group Ltd. Mr. Chen has extensive experience in finance and corporate management.

Tse Hau Yin, Aloysius, age 72, is an IndependentNon-Executive Director of the Company and joined the Board of the Company in September 2005. Mr. Tse is currently an IndependentNon-Executive Director of CNOOC Limited, Sinofert Holdings Limited, SJM Holdings Limited and China Huarong Asset Management Co., Ltd., all of which are listed on the Main Board of the HKSE. Mr. Tse is also an IndependentNon-Executive Director of OCBC Wing Hang Bank Limited (formerly known as “Wing Hang Bank Limited”, which was listed on the Main Board of the HKSE until October 2014). From 2004 to 2010, he was an IndependentNon-Executive Director of China Construction Bank Corporation, which is listed on the Main Board of the HKSE. From 2005 to 2016, Mr. Tse was also an IndependentNon-Executive Director of Daohe Global Group Limited (formerly known as “Linmark Group Limited”), which is listed on the Main Board of the HKSE. Mr. Tse was appointed as an IndependentNon-Executive Director of CCB International (Holdings) Limited, a wholly owned subsidiary of China Construction Bank Corporation in March 2013. He is also a member of the International Advisory Council of the People’s Municipal Government of Wuhan. Mr. Tse is a fellow of the Institute of Chartered Accountants in England and Wales, and the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Mr. Tse is a past President and a former member of the Audit Committee of the HKICPA. He joined KPMG in 1976, became a partner in 1984 and retired in March 2003. Mr. Tse was aNon-Executive Chairman of KPMG’s operations in China and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is a graduate of the University of Hong Kong.

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Xu Erming, age 70, is an IndependentNon-Executive Director of the Company and joined the Board of the Company in September 2005. Professor Xu is a professor and Dean of Business School of Shantou University and Vice Chairman of the Chinese Enterprise Management Research Association. He is entitled to the State Council’s special government allowances and is an IndependentNon-Executive Director of Comtec Solar Systems Group Limited, which is listed on the Main Board of the HKSE. Professor Xu served as a professor, Ph.D supervisor of the Graduate School and Dean of Business School at the Renmin University of China, and was an Independent Supervisor of Harbin Electric Company Limited, which is listed on the Main Board of the HKSE. Over the years, Professor Xu has conducted research in areas related to strategic management, innovation and entrepreneurship management, and has been responsible for research on many subjects put forward by the National Natural Science Foundation, the National Social Science Foundation, and other authorities at provincial and ministry level. He has received many awards such as the Ministry of Education’s Class One Excellent Higher Education Textbook Award, the State-Level Class Two Teaching Award and the National Excellent Course Award. Professor Xu has been awarded the Fulbright Scholar of U.S.A. twice and the visiting scholar of McGill University, Canada. Professor Xu was previously a lecturer at the New York State University at Buffalo, U.S.A., the University of Scranton, U.S.A., the University of Technology, Sydney, the Kyushu University, Japan, Panyapiwat Institute of Management, Thailand and the Hong Kong Polytechnic University.

Wang Hsuehming, age 70, is an IndependentNon-Executive Director of the Company and joined the Board of the Company in May 2014. Madam Wang received a bachelor of arts degree from the University of Massachusetts and attended Columbia University. She was a Senior Advisor and former Chairman of BlackRock China. She was also the former Chairman of China at Goldman Sachs Asset Management. She joined Goldman Sachs in 1994, became a Partner in 2000 and an Advisory Director from 2010 to 2011. With nearly 30 years of experience in financial services, she participated in pioneering efforts in China’s economic reform and development. She was instrumental in advising Ministry of Posts and Telecommunications and Ministry of Information Industry (now known as Ministry of Industry and Information Technology) in the privatizations and listings of its mobile and fixed line businesses. She also participated in advising appropriate operators in strategic investments by international telecom companies. The early cross-border financings of aircraft and other capital equipment in China’s aviation sector, as well as the separate listings of national airlines, and important provincial and municipal credit restructurings also formed part of Madam Wang’s understanding of China’s economic growth in the past three decades.

Yeung Chi Wai, Jason, age 65, is an IndependentNon-Executive Director of the Company and joined the Board of the Company in October 2018. Mr. Yeung is currently the Group Chief Compliance and Risk Management Officer of Fung Holdings (1937) Limited and its listed companies in Hong Kong, an IndependentNon-Executive Director of Bank of Communications Co., Ltd, which is listed on the Main Board of the HKSE and the Shanghai Stock Exchange and a member of Hospital Authority Board of Hong Kong. He served as an IndependentNon-Executive Director of AviChina Industry & Technology Company Limited, which is listed on the Main Board of the HKSE. Mr. Yeung has extensive experience in handling legal, compliance and regulatory matters and previously worked in the Securities and Futures Commission of Hong Kong, law firms and enterprises practising corporate, commercial and securities laws. Mr. Yeung served as a Director and the General Counsel of China Everbright Limited, which is listed on the Main Board of the HKSE and was also a partner of Woo, Kwan, Lee, & Lo. He acted as the Board Secretary of BOC Hong Kong (Holdings) Limited which is listed on the Main Board of the HKSE, from 2001 to 2011 and concurrently acted as the Board Secretary of Bank of China Limited which is listed on the Main Board of the HKSE and the Shanghai Stock Exchange, from 2005 to 2008. He also served as the Deputy Chief Executive (Personal Banking) of Bank of China (Hong Kong) Limited from April 2011 to February 2015. Mr. Yeung received a bachelor degree in social sciences from the University of Hong Kong. He then graduated from The College of Law, United Kingdom and received a bachelor degree in law and a master degree in business administration from the University of Western Ontario, Canada.

There is no family relationship between any of our Directors or executive officers.

Supervisors

The PRC Company Law requires a joint stock company with limited liability to establish a supervisory committee. Our Supervisory Committee has five Supervisors. Two members of our Supervisory Committee are employee representatives elected by our employees. The remaining members are appointed by shareholders at a general meeting. Our Supervisors are generally elected for a term of three years and may serve consecutive terms if re-elected. The term of office for the sixth session of our Supervisory Committee is three years, starting from May 23, 2017 until the date of the 2019 AGM, upon which the seventh session of the Supervisory Committee will be elected. The Supervisory Committee has proposed tore-elect the current Shareholder Representative Supervisors, Mr. Sui Yixun and Mr. Xu Shiguang as members of the seventh session of the Supervisory Committee. Due to his age, Mr. Ye Zhong will retire from his position as a Supervisor of the Company upon the expiry of his term of service at the 2019 AGM. The Employee Representative Supervisors of the seventh session of the Supervisory Committee shall be elected democratically by the employees of the Company.

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The following table sets forth certain information concerning our current Supervisors:

Sui Yixun, age 56, is the Chairman of the Supervisory Committee of the Company and joined the Supervisory Committee of the Company in May 2015. Mr. Sui is currently a Supervisor of Tianyi Telecom Terminals Company Limited and a Supervisor of China Tower Corporation Limited which is listed on the Main Board of the HKSE. Mr. Sui received a bachelor degree from Beijing Institute of Posts and Telecommunications and a master degree in business administration from Tsinghua University. Mr. Sui served as Deputy General Manager of China Telecom Shandong branch, Deputy General Manager of the Northern Telecom of China Telecommunications Corporation, General Manager of China Telecom Inner Mongolia Autonomous Region branch and the Managing Director of audit department of the Company. Mr. Sui is a senior economist and has extensive experience in operational and financial management in the telecommunications industry.

Zhang Jianbin, age 54, is an Employee Representative Supervisor of the Company and joined the Supervisory Committee of the Company in October 2012. Mr. Zhang is currently the Deputy Managing Director of the Corporate Strategy Department (Legal Department) and the Deputy General Counsel of China Telecommunications Corporation. Mr. Zhang graduated from the Law School of Peking University in 1989 and received a LLM degree. He also had an EMBA degree from the Guanghua School of Management at Peking University in 2006. He previously worked at the Department of Policy and Regulation of the Ministry of Posts and Telecommunications (“MPT”) and the Directorate General of Telecommunications of the MPT. Mr. Zhang has extensive experience in corporate legal affairs.

Yang Jianqing, age 60, is an Employee Representative Supervisor of the Company and joined the Supervisory Committee of the Company in May 2017. Mr. Yang graduated from the Beijing Institute of Posts and Telecommunications with a bachelor degree in 1982 and obtained a master degree in business administration from the University of Hong Kong. Mr. Yang served as Director General of Xining Telecommunications Bureau in Qinghai province, Deputy General Manager and General Manager of China Telecom Qinghai branch, General Manager of China Telecom Gansu branch, financial controller of the Company, General Manager and Senior Consultant of Corporate Culture Department of the Company. Mr. Yang is a senior engineer and has extensive experience in operational and financial management in the telecommunications industry.

Xu Shiguang, age 40, is a Supervisor of the Company and joined the Supervisor Committee of the Company in October 2018. Mr. Xu is currently the Director of general office of audit department of the Company. Mr. Xu received a bachelor degree in auditing and a master degree in accounting from the Nankai University. Mr. Xu served at various positions in internal control and auditing at China Telecommunications Corporation for many years. Mr. Xu is a member of the Chinese Institute of Certified Public Accountants and a Certified Internal Auditor with extensive experience in internal control and auditing.

Ye Zhong, age 60, is a Supervisor of the Company and joined the Supervisory Committee of the Company in May 2015. Mr. Ye is a senior accountant. He holds a bachelor degree. Mr. Ye is the Chairman and General Manager of Zhejiang Provincial Innovation and Development Investment Co. Ltd., Chairman of Zhejiang Financial Market Investment Co. Ltd. and Chairman and General Manager of Zhejiang Agricultural Investment and Development Fund Co. Ltd. Mr. Ye served as the Director of Zhejiang Provincial Financial Holdings Co., Ltd., Deputy General Manager of Zhejiang Financial Development Company (one of the domestic shareholders of the Company), Chairman of Zhejiang Venture Capital Fund of Funds Management Co. Ltd., Chairman and General Manager of Zhejiang Infrastructure Investment (including PPP) Fund Co. Ltd., Director of Zhejiang Provincial Industry Fund Co., Ltd., Deputy Director of the Social Security Division of the Department of Finance of Zhejiang Province, Deputy Director of the Discipline Inspection Division and Director of Supervisory Office of the Department of Finance of Zhejiang Province delegated by the Discipline Inspection Commission and Department of Supervision of Zhejiang Province. Mr. Ye has extensive experience in government’s work and state-owned enterprise management.

Compensation of Key Management Personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company and its subsidiaries, directly or indirectly, including Directors, Supervisors and Executive Vice Presidents of the Company and its subsidiaries. The aggregate amount of compensation we paid to our key management personnel was approximately RMB10.802 million for the year ended December 31, 2019.

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Our Directors and Supervisors receive compensation in the form of fees, salaries, allowances and benefits in kind, including our contribution to the pension plans for our Directors and Supervisors. The aggregate amount of compensation we paid to our Directors and Supervisors as a group for the year ended December 31, 2019 was approximately RMB9.203 million. The following table sets forth the compensation received or receivable by our Company’s Directors and Supervisors⁽¹⁾⁽²⁾:

Discretionary Bonuses for Executive Directors

Compensation of our Executive Directors is determined pursuant to our director compensation plans thereof approved and adopted by the Board and the Remuneration Committee. Under the director compensation plan, Executive Directors receive discretionary bonuses subject to achievement of certain performance targets. The amounts of discretionary bonuses are reviewed and determined annually, with reference to certain financial indicators of the preceding year. IndependentNon-Executive Directors andNon-Executive Directors do not receive any discretionary bonus.

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Discretionary Bonuses for Employee Supervisors

Certain of our Supervisors are also our employees. Mr. Ye Zhong is anon-employee Supervisor. Such employee supervisors are entitled to receiving discretionary bonuses under our compensation policies that are generally applicable to all employees. The amounts of such discretionary bonuses are determined with reference to the performance of the department in which an employee serves as well as his or her individual performance. The amounts of discretionary bonuses are reviewed and determined annually, based on the review of performance in the preceding year.Non-employee supervisors do not receive any discretionary bonus from our Company.

Share Appreciation Rights

We implemented a plan of share appreciation rights for members of our management in order to provide incentives for these employees. Under this plan, share appreciation rights were granted in units with each unit representing one H share. No shares will be issued under the share appreciation rights plan. Upon exercise of the share appreciation rights, a recipient will receive, subject to any applicable withholding tax, a cash payment in Renminbi, translated from the Hong Kong dollar amount equal to the product of the number of share appreciation rights exercised and the difference between the exercise price and market price of our Company’s H shares at the date of exercise based on the applicable exchange rate between Renminbi and Hong Kong dollar at the date of the exercise. We recognize compensation expense of the share appreciation rights over the applicable vesting period.

In November 2018, we approved the granting of 2,394 million share appreciation right units to eligible employees. Under the terms of this grant, all share appreciation rights had a contractual life of five years from date of grant and an exercise price of HK$3.81 per unit. A recipient of share appreciation rights may exercise the rights in stages commencing November 2020. As at each of the third, fourth and fifth anniversary of the date of grant, the total number of share appreciation rights exercisable may not in aggregate exceed 33.3%, 66.7% and 100.0%, respectively, of the total share appreciation rights granted to such person.

During the years ended December 31, 2019 and 2018, no share appreciation right units were exercised. For the year ended December 31, 2019, compensation expense of RMB136 million was recognized by us in respect of share appreciation rights. For the year ended December 31, 2018, compensation expense of RMB30 million was recognized by us in respect of share appreciation rights. As of December 31, 2019, the carrying amount of the liability arising from share appreciation rights was RMB166 million. As of December 31, 2018, the carrying amount of the liability arising from share appreciation rights was RMB30 million.

General

Pursuant to our Articles of Association, our Directors must be elected by our shareholders at a general meeting. Our Directors are generally elected for a term of three years and may serve consecutive terms ifre-elected. On May 23, 2017, election of members of the Board were conducted and this election generated the sixth session of the Board consisting of eleven Directors with six Executive Directors, oneNon-Executive Director and four IndependentNon-Executive Directors. The term of office for the sixth session of the Board lasts for three years, starting from May 23, 2017 until the date of the 2019 AGM, upon which the seventh session of the Board will be elected. The Board has proposed tore-elect the current Directors, Mr. Ke Ruiwen, Mr. Chen Zhongyue, Mr. Liu Guiqing, Madam Zhu Min, Mr. Wang Guoquan and Mr. Chen Shengguang as Directors of the seventh session of the Board; and tore-elect Mr. Tse Hau Yin, Aloysius, Mr. Xu Erming, Madam Wang Hsuehming and Mr. Yeung Chi Wai, Jason as Independent Directors of the seventh session of the Board. Meanwhile, the Board will also propose to seek the approval of the shareholders of the Company to elect Mr. Li Zhengmao, the President and Chief Operating Officer of the Company and Mr. Shao Guanglu, respectively as Executive Directors of the seventh session of the Board at the 2019 AGM. We determine the Directors’ remuneration with reference to factors such as their respective responsibilities and duties in the Company, as well as their experiences and market conditions at the relevant time. None of the service contracts with our Directors provide benefits to them upon termination.

On March 4, 2019, Mr. Yang Jie resigned from his positions as an Executive Director, Chairman and Chief Executive Officer of the Company due to change in work arrangement. On August 19, 2019, Mr. Liu Guiqing and Mr. Wang Guoquan, Executive Vice Presidents of the Company, were appointed as Executive Directors of the Company. On January 17, 2020, Mr. Gao Tongqing resigned from his positions as an Executive Director and Executive Vice President of the Company due to change in work arrangement. Our Board currently consists of ten Directors with five Executive Directors, oneNon-Executive Director and four IndependentNon-Executive Directors.

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The Board holds at least four meetings in each year. Additional Board meetings will be held in accordance with practical needs. In 2019, the Board played a pivotal role in the Company’s operation, supervision, internal control, risk management and other significant decisions and corporate governance. Specifically, the Board reviewed matters including, but not limited to, certain financial services framework agreements entered into between China Telecom Finance and the Company, China Telecommunications Corporation and CCS, respectively, the continuing connected transactions contemplated thereunder and the applicable annual caps thereto, the Company’s annual and interim financial statements, quarterly financial results, risk management and internal control implementation and assessment report, annual proposal for profit distribution, review of the structure and operations of the Board, two rounds of amendments to the Articles of Association, approval of authorization granted to the Company to issue debentures, proposal for Directors and senior management liabilities insurance, change of the principal place of business in Hong Kong, the implementation of continuing connected transactions, changes of Board members and senior management, remuneration proposal for the newly appointed Directors,re-appointment and remuneration of auditors, the 5G Cooperation Agreement with CUCL, and the progress report on the preparation of the Environmental, Social and Governance Report. During the year, the Company convened four Board meetings and completed various written resolutions. In 2019, the Chairman held a meeting to communicate with IndependentNon-Executive Directors (without the presence of other Directors) to ensure their opinions can be fully expressed, further facilitating the exchange of different views on the Board.

Audit Committee

The Audit Committee was established in 2002. It currently consists of four members, Mr. Tse Hau Yin, Aloysius (as the Chairman), Mr. Xu Erming, Madam Wang Hsuehming and Mr. Yeung Chi Wai, Jason, all of whom are IndependentNon-executive Directors. The Audit Committee is accountable to the Board and reports to it periodically. The Committee meets at least twice each year. The Charter of the Audit Committee was approved by our Board in March 2005 and amended in March 2009, in December 2011, in March 2015 and in December 2018, respectively, pursuant to which the principal responsibilities of our Audit Committee include supervision of our Company to ensure authenticity and completeness of our financial statements and effectiveness and completeness of the internal control and risk management system. The Audit Committee also supervises our internal audit department, and is responsible for the review and supervision of the qualifications, independence, selection and appointment of external independent auditors, and approval of services provided by the external independent auditors. In addition, the Audit Committee is responsible for ensuring that the management performs its duty to establish and maintain an effective risk management and internal control system including the adequacy of resources, qualifications and experience of staff fulfilling the accounting, internal control and financial reporting functions of the Company together with the adequacy of the staff’s training programs and related budget. The Audit Committee has established a mechanism for receiving and handling complaints or anonymous reports in respect of our accounting, internal control and audit matters.

In 2019, the Audit Committee held five meetings and passed two written resolutions, in which it reviewed matters including but not limited to, certain financial services framework agreements entered into between China Telecom Finance and the Company, China Telecommunications Corporation and CCS, respectively, the continuing connected transactions contemplated thereunder and the applicable annual caps thereto, the Company’s annual and interim financial statements and quarterly financial results, assessment of the qualifications, independence, performance, appointment and remuneration of the external auditors, effectiveness of risk management and internal control systems, internal audit, implementation of continuing connected transactions, review of the operations in 2018 and the Charter of the Audit Committee, and the progress report on the preparation of the Environmental, Social and Governance Report. The Audit Committee reviewed the annual auditor’s report, interim review report and quarterly agreed-upon procedures reports prepared by the external auditors, communicated with the management and the external auditors in regard to the regular financial reports and proposed them for the Board’s approval after review and approval. The Audit Committee regularly received quarterly reports in relation to the internal audit and continuing connected transactions and provided guidance to the Internal Audit Department. Additionally, the Audit Committee reviewed the internal control assessment and the attestation report, followed up with the implementation procedures of the recommendations proposed by the external auditors, reviewed the U.S. annual report, and communicated independently with the external auditors twice a year.

Remuneration Committee

The Remuneration Committee was established in 2003, and currently consists of three members, Mr. Xu Erming (as the Chairman), Mr. Tse Hau Yin, Aloysius and Madam Wang Hsuehming, all of whom are IndependentNon-Executive Directors. The Remuneration Committee is accountable to the Board and reports to it on its work periodically. The Remuneration Committee meets when necessary. The Charter of the Remuneration Committee was approved by our Board in March 2005 and amended in December 2011 and in December 2018, pursuant to which the Remuneration Committee’s principal responsibilities include making recommendations to the Board on our overall remuneration policies and structure relating to compensation of Directors and senior management and the establishment of a formal and transparent procedure for developing remuneration policy, and determining, with delegated responsibility by the Board, the remuneration packages of individual Executive Directors and senior management including benefits in kind, pension rights and compensation payments (including any compensation payable for loss or termination of their office or appointment).

The Remuneration Committee held one meeting in 2019, in which it reviewed and discussed the remuneration proposals for the newly appointed Directors.

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Nomination Committee

The Nomination Committee was established in 2005. It currently consists of three members, Madam Wang Hsuehming (as the Chairlady), Mr. Tse Hau Yin, Aloysius and Mr. Xu Erming, all of whom are IndependentNon-Executive Directors. The Nomination Committee is accountable to the Board and regularly reports to the Board on its work. The Nomination Committee meets at least once a year. The Charter of the Nomination Committee was approved by our Board in September 2005 and amended in December 2011 and August 2013, respectively, pursuant to which the Nomination Committee’s principal responsibilities include reviewing the structure, size, composition and diversity of the Board on a regular basis; identifying candidates and advising the Board with the appropriate qualifications for the position of Directors ; reviewing the Board Diversity Policy as appropriate to ensure its effectiveness; assessing the independence of the IndependentNon-Executive Directors; and making recommendations to the Board on the appointment orre-appointment of Directors and succession planning for Directors (especially Chairman and Chief Executive Officer).

The Nomination Committee held one meeting and passed three written resolutions in 2019, where it performed a review of the structure and operations of the Board and the proposed candidates for Chairman and Chief Executive Officer, Directors and other related matters.

Independent Board Committee

The Independent Board Committee consists of four IndependentNon-Executive Directors. Meetings of the Independent Board Committee are convened to review certain connected transactions on a case by case basis pursuant to the Listing Rules.

The Independent Board Committee held one meeting in 2019, where it reviewed matters related to the deposit services and the proposed annual caps applicable thereto contemplated under the financial services framework agreement entered into between the Company and China Telecom Finance on February 1, 2019 and gave the relevant confirmation as well as submitted voting recommendations on these matters to the independent shareholders.

General

As of December 31, 2019, we had 281,215 employees. The table below sets forth the numbers of our employees according to their functions as of December 31, 2017, 2018 and 2019: