Form 6-K
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the Month of September 2015

Commission File Number 1-31517

 

 

China Telecom Corporation Limited

(Translation of registrant’s name into English)

 

 

31 Jinrong Street, Xicheng District

Beijing 100033, China

(Address of principal executive offices)

 

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F  x            Form 40-F  ¨

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨)

(Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨)

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes  ¨            No   x

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-            .)

 

 

 


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EXHIBITS

 

Exhibit
Number

    
1.1    2015 Interim Report, dated August 19, 2015.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 6-K may be viewed as “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:

 

    our business and operating strategies and our ability to successfully execute these strategies;

 

    our network expansion and capital expenditure plans;

 

    our operations and business prospects;

 

    the expected benefit of any acquisitions or other strategic transactions;

 

    our financial condition and results of operations;

 

    the expected impact of new services on our business, financial condition and results of operations;

 

    the future prospects of and our ability to integrate acquired businesses and assets;

 

    the industry regulatory environment as well as the industry outlook generally; and

 

    future developments in the telecommunications industry in the People’s Republic of China, or the PRC.

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:

 

    any changes in the regulations or policies of the Ministry of Industry and Information Technology (prior to March 2008, the Ministry of Information Industry, or the MII), or the MIIT, and other relevant government authorities relating to, among other matters:


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    the granting and approval of licenses;

 

    tariff policies;

 

    interconnection and settlement arrangements;

 

    capital investment priorities;

 

    the provision of telephone and other telecommunications services to rural areas in the PRC;

 

    the convergence of television broadcast, telecommunications and Internet access networks, or three-network convergence; and

 

    spectrum and numbering resources allocation;

 

    the effects of competition on the demand for and price of our services;

 

    effects of our restructuring and integration following the completion of our acquisition of the Code Division Multiple Access technology, or CDMA, telecommunications business, or the CDMA Business in 2008;

 

    any potential further restructuring or consolidation of the PRC telecommunications industry;

 

    changes in the PRC telecommunications industry as a result of the issuance of the fourth generation mobile telecommunications, or 4G, licenses by the MIIT;

 

    the development of new technologies and applications or services affecting the PRC telecommunications industry and our current and future business;

 

    changes in political, economic, legal and social conditions in the PRC, including changes in the PRC government’s specific policies with respect to foreign investment in and entry by foreign companies into the PRC telecommunications industry, economic growth, inflation, foreign exchange and the availability of credit; and

 

    implementation of a value-added tax to replace the business tax in the PRC.

Please also see the “Risk Factors” section of the Company’s latest Annual Report on Form 20-F, as filed with the Securities and Exchange Commission.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    CHINA TELECOM CORPORATION LIMITED
Date: September 4, 2015              By:  

/s/ Yang Jie

        Name:   Yang Jie
        Title:   President and Chief Operating Officer


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LOGO


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Forward-looking

Statements

Certain statements contained in this report may be viewed as “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 (as amended) and Section 21E of the U.S. Securities Exchange Act of 1934 (as amended). Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of China Telecom Corporation Limited (the “Company”) to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. In addition, we do not intend to update these forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company’s most recent Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission (the “SEC”) and in the Company’s other filings with the SEC.

 

  

Contents

1   

Financial Highlights

2   

Chairman’s Statement

9   

Report on Review of Interim Financial Statements

10   

Unaudited Consolidated Statement of Financial Position

12   

Unaudited Consolidated Statement of Comprehensive Income

13   

Unaudited Consolidated Statement of Changes in Equity

14   

Unaudited Consolidated Statement of Cash Flows

16   

Notes to the Unaudited Interim Financial Statements

35   

Other Information


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Financial Highlights

 

    

Six-month period ended 30

June

 
     2014     2015  

Operating revenues (RMB millions)

     165,973        164,953   

EBITDA1 (RMB millions)

     50,538        50,739   

EBITDA margin2

     34.4     34.5

Net profit3 (RMB millions)

     11,436        10,980   

Earnings per share (RMB)

     0.141        0.136   

Capital expenditure (RMB millions)

     23,060        36,685   

Net asset value4 per share (RMB)

     3.496        3.643   

 

Operating Revenues    EBITDA1
(RMB millions)    (RMB millions)
LOGO    LOGO
Net Profit 3    NAV4 per share
(RMB millions)    (RMB)
LOGO    LOGO

 

1 EBITDA was calculated based on operating revenues minus operating expenses plus depreciation and amortisation.
2 EBITDA margin was calculated based on EBITDA divided by service revenues.
3 Net profit represented profit attributable to equity holders of the Company.
4 Net asset value represented equity attributable to equity holders of the Company.

 

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Chairman’s Statement

In the first half of 2015, despite the challenges brought by the regulatory policies such as the value-added tax (“VAT”) reform and “speed upgrade & tariff reduction”, the Company managed to achieve a breakthrough in geographical limitations following the issuance of the LTE FDD licence and accelerated development comprehensively. With full exploitation of the competitive capabilities of network, terminals, channels and customer service accumulated in preceding periods and leveraging the favourable policy of tower sharing, the Company focused on strategy implementation and promptly grasped the development pace and initiatives. The 4G network coverage was effectively enhanced and the 4G subscriber scale and market share rapidly increased despite intensified market competition. The edges in broadband network were rapidly transformed into marketing edges, accelerating development in fibre broadband services. The new integrated offering advantages of dual-100Mbps with 4G and fibre broadband gradually emerged while the scale operation and data traffic operation of the Company achieved remarkable overall results. At the same time, seizing these favourable opportunities, the Company persisted in comprehensive in-depth reform and accelerated the Internet-oriented transformation, resulting in continual strengthening in differentiated core competitiveness and vigorous promotion of scale development with a view to expanding the new horizons for future development in full strengths.

Operating Results

In the first half of the year, despite the impact of the regulatory policies such as the VAT reform, the Company’s overall development remained solid. Operating revenues amounted to RMB165.0 billion. Service revenues1 amounted to RMB147.0 billion, remaining stable as

 

1  Service revenues were calculated based on operating revenues minus sales of mobile terminals, sales of wireline equipment and other non-service revenues.

 

2


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Chairman’s Statement

 

compared with the same period last year and outperforming industry average growth. The revenues from emerging business increased by approximately 21% over the same period last year, accounting for approximately 34% of service revenues and representing an increase of 6 percentage points over the same period last year. The business structure continued to optimise rapidly. EBITDA2 was RMB50.7 billion, up by 0.4% over the same period last year while EBITDA margin3 was 34.5%. Profit attributable to the equity holders of the Company was RMB11.0 billion, representing a decline of 4% over the same period last year. Basic earnings per share were RMB0.14. Capital expenditure was RMB36.7 billion while free cash flow4 was RMB10.5 billion.

Since the commencement of the pilot programme of the VAT reform in the telecommunications industry in June 2014, the Company has been striving to optimise its development and sales models, implement enhanced management over cost, procurement and vendors’ tax qualifications as well as continue to optimise in revenue structure. The relevant monthly average adverse impact has been moderated. In the future, with the continual expansion of the VAT reform to other industries, it is expected that the Company will be entitled to more input VAT credits, which will be beneficial for the enhancement of its profitability in the long term.

Taking into consideration the Company’s profitability, cash flow level and the capital requirements for future development, the Board of Directors has decided not to pay an interim dividend this year in order to maintain adequate funding flexibility. The Board of Directors will proactively consider a final dividend proposal when reviewing the full year results and will propose to the shareholders’ general meeting accordingly.

Focusing on key businesses to accelerate scale development

In the first half of the year, the Company accelerated the development of its 4G services, driving steady growth of the mobile business. Taking full advantages of tower sharing, the Company rolled out the 4G network fast and effectively to enhance time-to-market and savings in capital expenditure. Leveraging the global mainstream technology standard and spectrum resources advantages, the network has basically covered city areas of county- level or above in general. With investment focus on high-valued areas, the coverage in key cities with high data traffic demand was further strengthened. The Company reasonably applied carrier aggregation technology and launched “e-Surfing 4G+” (LTE-A) service in selected key cities in August to create superior network, branding and reputation. The launch of signature 4G handsets specialised in video streaming, on-line shopping and security functions as well as entry-level handsets rapidly facilitated the all-round co- operation with mainstream handset manufacturers with enriching selection. The Company strengthened brand promotion and experience marketing. A new integrated offering of dual-100Mbps was launched and the design of package plans was optimised to induce the existing subscribers to upgrade to 4G services. Meanwhile, the Company adhered to the terminal-led approach with strategic handsets such as Apple and Samsung to attract more high-end subscribers, resulting in effective enhancement in customer acquisition capabilities. In the first half of the year, mobile service revenues reached RMB62.3 billion, representing an increase of 0.6% over the same

 

2  EBITDA was calculated based on operating revenues minus operating expenses plus depreciation and amortisation.
3  EBITDA margin was calculated based on EBITDA divided by service revenues.
4  Free cash flow was calculated from EBITDA minus capital expenditure and income tax.

 

3


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Chairman’s Statement

 

period last year. The net addition of mobile subscribers was 5.82 million, with total mobile subscribers reaching 191 million. Of which the net addition of 4G terminal users was approximately 22 million, reaching a total of approximately 29 million. The 4G user market share enhanced rapidly as compared with the end of last year. The 3G/4G subscribers accounted for approximately 68% of the total number of mobile subscribers and the subscriber structure was further optimised.

In the first half of the year, the Company fully leveraged the network edges accumulated over the years and comprehensively commenced the end-to-end bandwidth upgrade. The Company also reinforced the concerted development of broadband and 4G, as well as speeding up the product upgrade to promote the profitable and sustainable development of wireline broadband services. Capitalising on its own investment and the introduction of private capital, the construction of fibre network was accelerated. The interconnection of IDCs and capacity expansion of backbone network were fostered to enhance the transmission efficiency of Internet data. Through the establishment of strategic cooperation with key Internet content providers, the access of high quality content sources was assured. Focusing on customers’ experience and clearing all hurdles in the entire end-to- end process, the Company provided superior and high speed Internet experience for subscribers. Implementing the policy of “speed upgrade & tariff reduction”, the Company launched free upgrade for subscribers below 4Mbps bandwidth, and provided promotion offers such as tariff reduction for 50Mbps and 100Mbps mainstream broadband products, leveraging the price elasticity to optimise subscriber structure and enhancing value of subscribers. The Company also focused on the high-definition contents and integrated applications to further perfect the “Smart Family” products portfolio with “Joy me” as a core. In the first half of the year, the wireline broadband service revenue reached RMB37.6 billion, representing an increase of 3% over the same period last year. The number of wireline broadband subscribers reached 110 million, representing a net increase of 2.61 million. The average bandwidth of wireline broadband subscribers reached 18Mbps in June, doubling over the same period last year while the 100Mbps bandwidth subscribers accounted for over 10% of the total subscribers.

In the first half of the year, the Company accelerated the development of emerging business with continual expansion in business scale and revenue contribution. In addition to focusing on innovative data traffic products including dedicated-data traffic packages, “Data Traffic 800” and “Liuliangbao”, the Company refined the package design in response to the policy of “speed upgrade & tariff reduction”, providing more data concessions to subscribers. It led to rapid increase in data traffic scale and overall value. In the first half of the year, mobile handset Internet access revenues amounted to RMB22.5 billion, representing an increase of

 

4


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Chairman’s Statement

 

43% over the same period last year. The handset Internet data traffic increased by 77% over the same period last year, and the monthly average data traffic per 3G/4G handset subscriber reached 311MB, representing an increase of 43% over same period last year. The Company reinforced differentiated capabilities of YiChat products by launching the enterprise version to create the edges in business communications services. New services applications like payment and lifestyle service were also embedded. The user scale of YiChat expanded continuously and the registered users reached 180 million by end of June. The Company also accelerated the expansion of the collaborative business coverage of “BestPay” and deepened the exploration in Internet finance services such as wealth management and credit reference. In the first half of the year, the gross merchandise value of “BestPay” reached approximately RMB380 billion, an increase of two-fold over the same period last year. Led by the “Smart Cities” project, the Company fully leveraged the industry applications to drive the key markets such as business customers and campuses. The Company persisted in strengthening the integrated operation of IDC nationwide and launched the new deployment “8+2+X”5 integrating cloud and network to provide secured, timely and premier cloud services for customers to establish the differentiated service capability in the enterprise market. The Company firmly grasped the business opportunities of “Internet+” and accelerated the upgrade of ICT service from basic integration service to Internet-oriented operations. In the first half of the year, the Company’s overall ICT revenues amounted to RMB14.2 billion, representing an increase of 11% over the same period last year.

Fostering reform and innovation to enhance differentiated edges

In the first half of the year, the Company adhered to comprehensive in-depth reform and persisted in stimulating corporate vitality. Through thorough promotion of sub-division of performance evaluation units, the Company accelerated the selection and training of “unit CEOs” with over 30,000 “unit CEOs” nationwide. As the main force of market-oriented reform grew rapidly, the efficiency and return of the frontline operation was profoundly enhanced. The establishment of the “top-down” service support system was expedited, promoting change in corporate management and further flattening organisation structure. Through various methods including efficiently-centralised support, frontline-oriented service and reverse appraisal, internal interaction was strengthened and a highly-efficient, responsive and collaborative operating system was created.

 

5 

“8+2+X” denotes 8 major regional nodes, 2 core cloud data centre bases in Inner Mongolia and Guizhou and dynamic city nodes in accordance with customers’ demand.

 

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Chairman’s Statement

 

Accurately grasping the Internet dynamics, the Company has achieved remarkable progress in Internet-oriented transformation. The Company proactively commenced the professional and coordinated channel operation with O2O as a core as well as enhanced the development efficiency of specialty stores and open channels. Marketing modes such as WeChat shops were further diversified. With the consolidation of online sales and service portals, the online integrated service platform “Joy go” was launched, so as to strengthen the efficiently-centralised Internet-oriented marketing and services. The overall capability and cost efficiency of channel sales were further enhanced. Firmly seizing the strategic opportunities of the implementation of the national “Internet+” action plan, the Company timely released the “Internet+” action white paper with the layout of four key strategic areas: modern agriculture, industrial manufacturing, emerging services and corporate operations, focusing on 10 major projects such as smart production. In cooperation with the partners, the Company will explore the best business models for value chain operations and work together to create an open, highly-efficient collaborative industry ecosystem to promote the evolution and upgrade of traditional industries. The Company leveraged new international mainstream technology such as Software Defined Network (SDN) to promote the Internet-oriented transformation of the network while using customer experience as a core to promote transformation of network maintenance to network operations. Facing the demands from Internet-oriented operations, the efficiently- centralised operations of IT services was expedited, resulting in consistent enhancement in both market response capability and operating efficiency.

Focused on the Company’s own strengths and resources, the capabilities of differentiated products were rapidly enhanced. The security products were developed quickly. The network security product “cloud dam” and security handsets launched at the end of last year started to establish their scale. The recent launch of “e-Surfing security” brand and a series of related products continuously optimised the all-round security protection system integrating the “cloud, pipe and device”. The operation capability of secured WiFi platform was further strengthened and the hotspots of the Company’s “aWiFi” platform reached 500,000. The Company leveraged the edges in secured unified account authentication and large scale hotspot resources to attract business partners to explore the new WiFi business models. The application scope and scale of Near Field Communication (NFC) business continued to expand, with the launch of public transport card function in 90 cities nationwide and e-Surfing RFID function in 24 provinces, as well as UnionPay applications collaborating with 23 banks. The NFC users have already exceeded 20 million. In addition to providing secured cloud-based infrastructure resources, the Company continued to expand cloud applications and services to further enrich the cloud computing product line. In the first half of the year, the revenues from cloud computing products amounted to RMB470 million, representing a 54% increase over the same period last year with rapid increase in worldwide leading and reputable corporate customers. Applying the existing rich data resources, the Company proactively explored Big Data products development and launched precision marketing and customer retention internally while further promoting the application scope of Big Data products such as “Smart Insight”, “Smart Credit Reference” externally, laying a foundation for future scale development.

 

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Chairman’s Statement

 

Corporate Governance and Social Responsibility

We are committed to maintaining a high level of corporate governance, attaching great importance to risk management and control. We strive to enhance corporate transparency and value to ensure our healthy and orderly growth. Our persistent efforts in corporate governance have been widely recognised by the capital markets. We have been accredited with a number of awards and recognition for the year to date, including the “Most Honored Company in Asia” by Institutional Investor for five consecutive years and the “Overall Best Managed Company in Asia” by FinanceAsia for five consecutive years.

We persisted in operating with integrity and proactively fulfilled our corporate social responsibility to maintain a fair and orderly environment for market competition and facilitate healthy development of the entire value chain. Meanwhile, we actively promoted green operations, further strengthening energy conservation and emission reduction to improve utilisation efficiency of resources. We accomplished telecommunications assurance tasks for significant events such as the 2015 World Table Tennis Championships and disaster reliefs and were highly commended by the society.

Outlook

2015 marks a crucial year for the Company’s 4G scale development and change in the industry competitive landscape. The Company is facing various challenges including a slowdown in macro-economic growth, saturated market on mobile subscribers, VAT reform and “speed upgrade & tariff reduction”, as well as intensifying competition within and across the industries. However, following the rapid development of the Internet industry together with the initiation and implementation of the national “Internet+” action plan, the benefits from the national “innovation-driven” policy became prominent. With the rapid growth in the demand for the high speed Internet, there will be huge development opportunity for information economy represented by the “Internet+” and vast potential for the Company’s prospects.

In the second half of the year, the Company will optimise the allocation of investment resources and adopt the latest technology to continuously strengthen 4G premier network quality, brand advantage and leading customer experience, fully leveraging the tower sharing to enhance corporate value and taking customer experience as the core. We will step up our support for non-customised handsets, vigorously promoting the development of signature terminals such as dual-SIM 6-mode handsets, 4G+ handsets and security handsets. We will also comprehensively accelerate the transformation of channel operation model with O2O as the core and establish 60,000 premier specialty stores to strengthen our influence on terminals and channels. At the same time, the Company will further strengthen its differentiated competitive edges in wireline broadband network and promote scale development of its “Smart Family” products, “Joy me”, to continuously enhance the scale and return of the fibre broadband subscribers.

 

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Chairman’s Statement

 

The Company will closely follow up and strive to accommodate the regulatory requirements of “speed upgrade & tariff reduction”. The Company will continuously explore and optimise the business model of data traffic operation, leveraging data price elasticity to increase sales at lower unit prices in order to achieve a win-win situation. Making use of Big Data analysis, the Company will commence precision data traffic operations to enhance data value. We will commence co-operation in various forms and actively explore and refine the data traffic operation model integrating forward- and backward-operations. At the same time, the Company will leverage its strengths in network and customer resources to continuously promote Internet-oriented transformation and manage well its Internet data analytics to accelerate scale expansion of its differentiated products. Adhering to open cooperation, the Company will aim for achieving breakthroughs on “Internet+” applications and the rapid formation of product capabilities in cloud computing, Big Data, Internet of Things and other new technology application areas, strengthening competitive advantages of the ecosystem.

Looking ahead, we have full confidence. We will follow the established strategic plans to pursue innovative development, in-depth reform and excellent execution. We will well- perform the “punches combo” of scale development, data traffic operation and Internet data analytics to further enhance revenue and subscriber market share, fully promoting the changes in the industry landscape towards a favourable direction, with a view to continuously creating new value for shareholders.

Finally, on behalf of the Board of Directors, I would like to take this opportunity to express my sincere appreciation to all our shareholders and customers for their support. I would also like to express my sincere thanks to all our employees for their hard work and contribution. Also, I would like to welcome Mr. Sui Yixun and Mr. Ye Zhong to join our Supervisory Committee.

 

Wang Xiaochu
Chairman and Chief Executive Officer
Beijing, China
19 August 2015

 

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Report on Review of Interim Financial Statements

 

LOGO

To the Board of Directors of China Telecom Corporation Limited

Introduction

We have reviewed the interim financial statements of China Telecom Corporation Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 10 to 34, which comprise the consolidated statement of financial position as at 30 June 2015 and the related consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the six-month period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”) issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of these interim financial statements in accordance with IAS 34. Our responsibility is to express a conclusion on these interim financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”, issued by the Hong Kong Institute of Certified Public Accountants. A review of these interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that these interim financial statements are not prepared, in all material respects, in accordance with IAS 34.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

19 August 2015

 

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Consolidated Statement of Financial Position (Unaudited)

at 30 June 2015

(Amounts in millions)

 

     Note    30 June
2015
RMB
     31 December
2014
RMB
 

ASSETS

        

Non-current assets

        

Property, plant and equipment, net

        364,198         372,876   

Construction in progress

        63,443         53,181   

Lease prepayments

        24,119         24,410   

Goodwill

        29,917         29,917   

Intangible assets

        8,796         8,984   

Interests in associates

        3,651         4,106   

Investments

        1,939         972   

Deferred tax assets

   8      3,896         3,232   

Other assets

        4,192         4,053   
     

 

 

    

 

 

 

Total non-current assets

        504,151         501,731   

Current assets

        

Inventories

        3,573         4,225   

Income tax recoverable

        1,144         1,360   

Accounts receivable, net

   4      27,691         21,562   

Prepayments and other current assets

        12,995         10,581   

Short-term bank deposits

        2,173         1,379   

Cash and cash equivalents

   5      21,228         20,436   
     

 

 

    

 

 

 

Total current assets

        68,804         59,543   
     

 

 

    

 

 

 

Total assets

        572,955         561,274   
     

 

 

    

 

 

 

The notes on pages 16 to 34 form part of these interim financial statements.

 

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Consolidated Statement of Financial Position (Unaudited)

at 30 June 2015

(Amounts in millions)

 

     Note    30 June
2015
RMB
    31 December
2014
RMB
 

LIABILITIES AND EQUITY

       

Current liabilities

       

Short-term debt

   6      28,117        43,976   

Current portion of long-term debt

   6      75        82   

Accounts payable

   7      98,087        88,458   

Accrued expenses and other payables

        83,615        72,442   

Income tax payable

        1,163        307   

Current portion of deferred revenues

        968        1,060   
     

 

 

   

 

 

 

Total current liabilities

        212,025        206,325   
     

 

 

   

 

 

 

Net current liabilities

        (143,221     (146,782
     

 

 

   

 

 

 

Total assets less current liabilities

        360,930        354,949   
     

 

 

   

 

 

 

Non-current liabilities

       

Long-term debt and payable

   6      62,435        62,494   

Deferred revenues

        664        798   

Deferred tax liabilities

   8      1,617        1,125   

Other non-current liabilities

        423        424   
     

 

 

   

 

 

 

Total non-current liabilities

        65,139        64,841   
     

 

 

   

 

 

 

Total liabilities

        277,164        271,166   
     

 

 

   

 

 

 

Equity

       

Share capital

        80,932        80,932   

Reserves

        213,872        208,251   
     

 

 

   

 

 

 

Total equity attributable to equity holders of the Company

        294,804        289,183   

Non-controlling interests

        987        925   
     

 

 

   

 

 

 

Total equity

        295,791        290,108   
     

 

 

   

 

 

 

Total liabilities and equity

        572,955        561,274   
     

 

 

   

 

 

 

The notes on pages 16 to 34 form part of these interim financial statements.

 

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Consolidated Statement of Comprehensive Income (Unaudited)

for the six-month period ended 30 June 2015

(Amounts in millions, except per share data)

 

          Six-month period ended 30 June  
     Note    2015
RMB
    2014
RMB
 

Operating revenues

   9      164,953        165,973   

Operating expenses

       

Depreciation and amortisation

        (33,585     (32,776

Network operations and support

   10      (37,224     (29,332

Selling, general and administrative

        (25,062     (36,943

Personnel expenses

   11      (28,079     (24,642

Other operating expenses

   12      (23,849     (24,518
     

 

 

   

 

 

 

Total operating expenses

        (147,799     (148,211
     

 

 

   

 

 

 

Operating profit

        17,154        17,762   

Net finance costs

   13      (2,160     (2,736

Investment income

        6        2   

Share of (losses)/profits of associates

        (456     7   
     

 

 

   

 

 

 

Profit before taxation

        14,544        15,035   

Income tax

   14      (3,536     (3,561
     

 

 

   

 

 

 

Profit for the period

        11,008        11,474   
     

 

 

   

 

 

 

Other comprehensive income for the period

       

Items that may be reclassified subsequently to profit or loss

       

Change in fair value of available-for-sale equity securities

        967        (41

Deferred tax on change in fair value of available-for-sale equity securities

        (242     10   

Exchange difference on translation of financial statements of subsidiaries outside mainland China

        (11     26   

Share of other comprehensive income of associates

        1        (2
     

 

 

   

 

 

 

Other comprehensive income for the period, net of tax

        715        (7
     

 

 

   

 

 

 

Total comprehensive income for the period

        11,723        11,467   
     

 

 

   

 

 

 

Profit attributable to

       

Equity holders of the Company

        10,980        11,436   

Non-controlling interests

        28        38   
     

 

 

   

 

 

 

Profit for the period

        11,008        11,474   
     

 

 

   

 

 

 

Total comprehensive income attributable to

       

Equity holders of the Company

        11,695        11,429   

Non-controlling interests

        28        38   
     

 

 

   

 

 

 

Total comprehensive income for the period

        11,723        11,467   
     

 

 

   

 

 

 

Basic earnings per share

   16      0.14        0.14   
     

 

 

   

 

 

 

Number of shares (in millions)

   16      80,932        80,932   
     

 

 

   

 

 

 

The notes on pages 16 to 34 form part of these interim financial statements.

 

12


Table of Contents

Consolidated Statement of Changes in Equity (Unaudited)

for the six-month period ended 30 June 2015

(Amounts in millions)

 

          Attributable to equity holders of the Company              
     Note    Share
capital
RMB
     Capital
reserve
RMB
    Share
premium
RMB
     Statutory
reserves
RMB
     Other
reserves
RMB
    Exchange
reserve
RMB
    Retained
earnings
RMB
    Total
RMB
    Non-
controlling
interests
RMB
    Total
equity
RMB
 

Balance as at 1 January 2014

        80,932         17,064        10,746         67,392         427        (944     102,124        277,741        923        278,664   

Profit for the period

        —           —          —           —           —          —          11,436        11,436        38        11,474   

Other comprehensive income

        —           —          —           —           (33     26        —          (7     —          (7
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

        —           —          —           —           (33     26        11,436        11,429        38        11,467   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends

   15      —           —          —           —           —          —          (6,198     (6,198     —          (6,198
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 30 June 2014

        80,932         17,064        10,746         67,392         394        (918     107,362        282,972        961        283,933   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 1 January 2015

        80,932         17,064        10,746         69,072         384        (941     111,926        289,183        925        290,108   

Profit for the period

        —           —          —           —           —          —          10,980        10,980        28        11,008   

Other comprehensive income

        —           —          —           —           726        (11     —          715        —          715   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

        —           —          —           —           726        (11     10,980        11,695        28        11,723   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition of non-controlling interests

        —           (1     —           —           —          —          —          (1     (6     (7

Contribution from non-controlling interests

        —           87        —           —           —          —          —          87        40        127   

Dividends

   15      —           —          —           —           —          —          (6,160     (6,160     —          (6,160
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 30 June 2015

        80,932         17,150        10,746         69,072         1,110        (952     116,746        294,804        987        295,791   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The notes on pages 16 to 34 form part of these interim financial statements.

 

13


Table of Contents

Consolidated Statement of Cash Flows (Unaudited)

for the six-month period ended 30 June 2015

(Amounts in millions)

 

         Six-month period ended 30 June  
     Note   2015
RMB
    2014
RMB
 

Net cash from operating activities

   (a)     54,412        43,985   
    

 

 

   

 

 

 

Cash flows used in investing activities

      

Capital expenditure

       (37,123     (31,751

Purchase of investments

       (1     —     

Lease prepayments

       (90     (40

Proceeds from disposal of property, plant and equipment

       243        131   

Proceeds from disposal of lease prepayments

       —          6   

Purchase of short-term bank deposits

       (2,114     (1,526

Maturity of short-term bank deposits

       1,325        1,614   
    

 

 

   

 

 

 

Net cash used in investing activities

       (37,760     (31,566
    

 

 

   

 

 

 

Cash flows used in financing activities

      

Proceeds from bank and other loans

       20,568        11,541   

Repayments of bank and other loans

       (36,471     (22,785

Payment of dividends

       (70     (105

Payment for the acquisition of non-controlling interests

       (7     —     

Contribution from non-controlling interests

       127        —     

Payment of the acquisition price of the Seventh Acquisition

   (b)     —          (278

Net cash distributions to non-controlling interests

       —          (1
    

 

 

   

 

 

 

Net cash used in financing activities

       (15,853     (11,628
    

 

 

   

 

 

 

Net increase in cash and cash equivalents

       799        791   

Cash and cash equivalents at 1 January

       20,436        16,070   

Effect of changes in foreign exchange rate

       (7     30   
    

 

 

   

 

 

 

Cash and cash equivalents at 30 June

       21,228        16,891   
    

 

 

   

 

 

 

The notes on pages 16 to 34 form part of these interim financial statements.

 

14


Table of Contents

Consolidated Statement of Cash Flows (Unaudited)

for the six-month period ended 30 June 2015

(Amounts in millions)

 

  (a) Reconciliation of profit before taxation to net cash from operating activities

 

     Six-month period ended 30 June  
     2015
RMB
     2014
RMB
 

Profit before taxation

     14,544         15,035   

Adjustments for:

     

Depreciation and amortisation

     33,585         32,776   

Impairment losses for doubtful debts

     1,471         1,587   

Write down of inventories

     37         97   

Investment income

     (6      (2

Share of losses/(profits) of associates

     456         (7

Interest income

     (164      (130

Interest expense

     2,362         2,859   

Unrealised foreign exchange (gain)/loss

     (38      7   

Loss on disposal of property, plant and equipment

     1,865         1,377   
  

 

 

    

 

 

 

Operating profit before changes in working capital

     54,112         53,599   

Increase in accounts receivable

     (7,567      (8,765

Decrease in inventories

     625         476   

Increase in prepayments and other current assets

     (2,076      (1,784

Increase in other assets

     (151      (141

Increase in accounts payable

     6,523         754   

Increase in accrued expenses and other payables

     8,259         5,714   

Decrease in deferred revenues

     (226      (325
  

 

 

    

 

 

 

Cash generated from operations

     59,499         49,528   

Interest received

     176         142   

Interest paid

     (2,385      (2,467

Income tax paid

     (2,878      (3,218
  

 

 

    

 

 

 

Net cash from operating activities

     54,412         43,985   
  

 

 

    

 

 

 

 

  (b) The Seventh Acquisition represents the acquisition of the 100% equity interest in China Telecom (Europe) Limited, a wholly owned subsidiary of China Telecommunications Corporation, by China Telecom Global Limited, a subsidiary of the Company, from China Telecommunications Corporation on 31 December 2013.

The notes on pages 16 to 34 form part of these interim financial statements.

 

15


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

1. Principal Activities

China Telecom Corporation Limited (the “Company”) and its subsidiaries (hereinafter, collectively referred to as the “Group”) offers a comprehensive range of wireline and mobile telecommunications services including wireline voice, mobile voice, Internet, telecommunication network resource services and lease of network equipment, value-added services, integrated information application services and other related services. The Group provides wireline telecommunications services and related services in Beijing Municipality, Shanghai Municipality, Guangdong Province, Jiangsu Province, Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province, Guangxi Zhuang Autonomous Region, Chongqing Municipality, Sichuan Province, Hubei Province, Hunan Province, Hainan Province, Guizhou Province, Yunnan Province, Shaanxi Province, Gansu Province, Qinghai Province, Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region of the People’s Republic of China (the “PRC”). Following the acquisition of Code Division Multiple Access (“CDMA”) mobile telecommunications business in October 2008, the Group also provides mobile telecommunications and related services in the mainland China and Macau Special Administrative Region (“Macau”) of the PRC. The Group also provides international telecommunications services, including lease of network equipment, International Internet access and transit, and Internet data centre service in certain countries of the Asia Pacific, Europe, Africa, South America and North America regions. The operations of the Group in the mainland China are subject to the supervision and regulation by the PRC government.

 

2. Basis of Preparation

These interim financial statements have been prepared in accordance with International Accounting Standard 34, (“IAS 34”) “Interim Financial Reporting” issued by the International Accounting Standards Board and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. These interim financial statements, which were authorised for issuance by the Board of Directors on 19 August 2015, reflect the unaudited financial position of the Group as at 30 June 2015 and the unaudited results of operations and cash flows of the Group for the six-month period then ended, which are not necessarily indicative of the results of operations and cash flows expected for the year ending 31 December 2015.

These interim financial statements are prepared on the historical cost basis as modified by the revaluation of certain available-for-sale equity securities at fair value.

Except as described below, these interim financial statements have been prepared in accordance with the same accounting policies adopted in the 2014 annual financial statements of the Group.

 

16


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

2. Basis of Preparation (continued)

 

In the current interim period, the Group has applied, for the first time, the following amendments to International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board that are mandatorily effective for the current period:

Amendments to IAS 19, “Defined Benefit Plans: Employee Contributions”

Annual Improvements to IFRSs 2010–2012 Cycle

Annual Improvements to IFRSs 2011–2013 Cycle

The application of the above amendments to IFRSs has had no material effect on the Group’s interim financial statements.

The preparation of interim financial statements in conformity with IAS 34, “Interim Financial Reporting” requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

These interim financial statements contain consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2014 annual financial statements. The interim financial statements and notes thereon do not include all of the information required for a full set of financial statements prepared in accordance with IFRSs.

These interim financial statements are unaudited, but have been reviewed by the Audit Committee of the Company. These interim financial statements have also been reviewed by the Company’s international independent auditor in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”, issued by the Hong Kong Institute of Certified Public Accountants.

The financial information relating to the financial year ended 31 December 2014 that is included in these interim financial statements as being previously reported does not constitute the Group’s statutory financial statements for that financial year but is derived from those financial statements. The statutory financial statements for the year ended 31 December 2014 are available from the Company’s registered office. The Company’s international independent auditor has expressed an unqualified opinion on those financial statements in the report dated 18 March 2015.

 

17


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

3. Segmental Reporting

An operating segment is a component of an entity that engages in business activities from which revenues are earned and expenses are incurred, and is identified on the basis of the internal financial reports that are regularly reviewed by the chief operating decision maker in order to allocate resource and assess performance of the segment. For the periods presented, management has determined that the Group has one operating segment as the Group is only engaged in the integrated telecommunications business. The Group’s assets located outside mainland China and operating revenues derived from activities outside mainland China are less than 10% of the Group’s assets and operating revenues, respectively. No geographical area information has been presented as such amount is immaterial. No single external customer accounts for 10 percent or more of the Group’s operating revenues.

 

4. Accounts Receivable, Net

Accounts receivable, net, are analysed as follows:

 

     Note    30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Third parties

        29,933         22,853   

China Telecom Group

   (i)      436         329   

Other telecommunications operators in the PRC

        1,198         858   
     

 

 

    

 

 

 
        31,567         24,040   

Less: Allowance for doubtful debts

        (3,876      (2,478
     

 

 

    

 

 

 
        27,691         21,562   
     

 

 

    

 

 

 

Note:

 

(i) China Telecommunications Corporation together with its subsidiaries other than the Group are referred to as “China Telecom Group”.

 

18


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

4. Accounts Receivable, Net (continued)

 

Ageing analysis of accounts receivable from telephone and Internet subscribers is as follows:

 

     30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Current, within 1 month

     11,710         11,273   

1 to 3 months

     3,572         2,600   

4 to 12 months

     2,390         1,865   

More than 12 months

     1,422         660   
  

 

 

    

 

 

 
     19,094         16,398   

Less: Allowance for doubtful debts

     (3,513      (2,355
  

 

 

    

 

 

 
     15,581         14,043   
  

 

 

    

 

 

 

Ageing analysis of accounts receivable from other telecommunications operators and enterprise customers is as follows:

 

     30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Current, within 1 month

     4,117         3,012   

1 to 3 months

     3,143         1,679   

4 to 12 months

     3,534         1,924   

More than 12 months

     1,679         1,027   
  

 

 

    

 

 

 
     12,473         7,642   

Less: Allowance for doubtful debts

     (363      (123
  

 

 

    

 

 

 
     12,110         7,519   
  

 

 

    

 

 

 

Amounts due from the provision of telecommunications services to customers are generally due within 30 days from the date of billing.

 

19


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

5. Cash and Cash Equivalents

 

     30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Cash at bank and in hand

     19,235         18,660   

Time deposits with original maturity within three months

     1,993         1,776   
  

 

 

    

 

 

 
     21,228         20,436   
  

 

 

    

 

 

 

 

6. Short-Term and Long-term Debt and Payable

Short-term debt comprises:

 

     30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Loans from banks – unsecured

     5,249         5,399   

Super short-term commercial papers – unsecured

     3,000         18,997   

Other loans – unsecured

     182         182   

Loans from China Telecom Group – unsecured

     19,686         19,398   
  

 

 

    

 

 

 

Total short-term debt

     28,117         43,976   
  

 

 

    

 

 

 

The weighted average interest rate of the Group’s total short-term debt as at 30 June 2015 was 4.6% (31 December 2014: 5.1%) per annum. As at 30 June 2015, the Group’s loans from banks and other loans bear interest at rates ranging from 4.5% to 11.0% (31 December 2014: 4.5% to 11.0%) per annum and are repayable within one year; super short-term commercial papers amounting to RMB3 billion as at 30 June 2015 bear interest at a fixed rate of 4.38% per annum and were fully repaid in July 2015; the loans from China Telecom Group bear interest at rates from 4.1% to 4.5% (31 December 2014: 4.5%) per annum and are repayable within one year.

 

20


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

6. Short-Term and Long-term Debt and Payable (continued)

 

Long-term debt and payable comprises:

 

    

Note

   30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Loans from banks – unsecured

   (i)      799         865   

Other loans – unsecured

   (i)      1         1   

Amounts due to China Telecommunications

        

Corporation – unsecured

        

Deferred consideration of Mobile Network Acquisition

   (ii)      61,710         61,710   
     

 

 

    

 

 

 

Total long-term debt and payable

        62,510         62,576   

Less: current portion

        (75      (82
     

 

 

    

 

 

 

Non-current portion

        62,435         62,494   
     

 

 

    

 

 

 

Note:

 

(i) The loans from banks and other loans bear interest at rates ranging from 1.00% to 8.30% (31 December 2014: 1.00% to 8.30%) per annum with maturity through 2060.
(ii) Represents the remaining balance of the deferred consideration payable to China Telecommunications Corporation in respect  of the acquisition of certain CDMA network assets and associated liabilities, which were held by China Telecommunications Corporation through network branches located in 30 provinces, municipalities and autonomous regions in the PRC (hereinafter referred to as the “Mobile Network Acquisition”). The Company may, from time to time, pay all or part of the deferred payment at any time after the completion date without penalty until the fifth anniversary of the completion date of the Mobile Network Acquisition. The Company pays interest on the deferred payment to China Telecommunications Corporation at half-yearly intervals and the interest accrues from the day following the completion of the Mobile Network Acquisition. The interest rate is set at a 5 basis points premium to the yield of the 5-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors before the completion date of the Mobile Network Acquisition and will be adjusted once a year in accordance with the last yield of the 5-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors at the end of each year. The annual interest rates for 2014 and 2015 are 6.25% and 5.11%, respectively.

If the amount is not paid when due, the Company is required to pay the liquidated damages on such amount at a daily rate of 0.03% of the amount in arrears from the day following the applicable due date to the date that such amount has actually been paid in full.

The Group’s short-term and long-term debt and payable do not contain any financial covenants. As at 30 June 2015, the Group had unutilised committed credit facilities amounting to RMB115,597 million (31 December 2014: RMB130,488 million).

 

21


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

7. Accounts Payable

Accounts payable are analysed as follows:

 

     30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Third parties

     78,290         71,934   

China Telecom Group

     18,933         15,667   

Other telecommunications operators in the PRC

     864         857   
  

 

 

    

 

 

 
     98,087         88,458   
  

 

 

    

 

 

 

Amounts due to China Telecom Group are payable in accordance with contractual terms which are similar to those terms offered by third parties.

Ageing analysis of accounts payable is as follows:

 

     30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Due within 1 month or on demand

     17,567         17,783   

Due after 1 month but within 3 months

     13,017         11,678   

Due after 3 months but within 6 months

     22,717         14,825   

Due after 6 months

     44,786         44,172   
  

 

 

    

 

 

 
     98,087         88,458   
  

 

 

    

 

 

 

 

22


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

8. Deferred Tax Assets and Liabilities

The components of deferred tax assets and deferred tax liabilities recognised in the consolidated statement of financial position and the movements are as follows:

 

     Assets      Liabilities     Net Balance  
     30 June
2015
RMB millions
     31 December
2014
RMB millions
     30 June
2015
RMB millions
    31 December
2014
RMB millions
    30 June
2015
RMB millions
    31 December
2014
RMB millions
 

Provisions and impairment losses, primarily for doubtful debts

     1,503         1,156         —          —          1,503        1,156   

Property, plant and equipment

     2,155         1,788         (1,054     (773     1,101        1,015   

Deferred revenues and installation costs

     238         288         (158     (189     80        99   

Available-for-sale equity securities

     —           —           (405     (163     (405     (163
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets/(liabilities)

     3,896         3,232         (1,617     (1,125     2,279        2,107   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     Balance at
1 January 2015
RMB millions
     Recognised in
consolidated
statement of
comprehensive
income
RMB millions
     Balance at
30 June 2015
RMB millions
 

Provisions and impairment losses, primarily for doubtful debts

     1,156         347         1,503   

Property, plant and equipment

     1,015         86         1,101   

Deferred revenues and installation costs

     99         (19      80   

Available-for-sale equity securities

     (163      (242      (405
  

 

 

    

 

 

    

 

 

 

Net deferred tax assets

     2,107         172         2,279   
  

 

 

    

 

 

    

 

 

 

 

23


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

9. Operating Revenues

Operating revenues represent revenues from the provision of telecommunications services. The components of the Group’s operating revenues are as follows:

 

          Six-month period ended 30 June  
     Note    2015
RMB millions
     2014
RMB millions
 

Wireline voice

   (i)      15,268         17,561   

Mobile voice

   (ii)      24,889         30,148   

Internet

   (iii)      62,274         54,755   

Value-added services

   (iv)      20,128         18,996   

Integrated information application services

   (v)      13,966         14,538   

Telecommunications network resource services and lease of network equipment

   (vi)      8,667         9,209   

Others

   (vii)      19,761         20,766   
     

 

 

    

 

 

 
        164,953         165,973   
     

 

 

    

 

 

 

Note:

Before 1 June 2014, most of the Group’s operating revenues were subject to business tax levied at rates of 3%, and relevant business tax was set off against operating revenues. Pursuant to the Notice on Covering Telecommunications Industries under the VAT Reform (Caishui [2014] No.43) jointly issued by the Ministry of Finance and the State Administration of Taxation, from 1 June 2014, the pilot programme of replacing business tax with VAT is extended to cover the telecommunications industry. The VAT rate for basic telecommunications services (including voice communication, lease or sale of network resources) is 11% while the VAT rate for value-added telecommunications services (including Internet access services, short and multimedia messaging services, transmission and application service of electronic data and information) is 6%, and VAT is excluded from operating revenues. With effect from 1 June 2014, the Group is no longer required to pay business tax of 3% on telecommunications services.

 

(i) Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees, interconnections fees and installation fees charged to customers for the provision of wireline telephony services.
(ii) Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees and interconnections fees charged to customers for the provision of mobile telephony services.
(iii) Represent amounts charged to customers for the provision of Internet access services.
(iv) Represent the aggregate amount of fees charged to customers for the provision of value-added services, which comprise primarily caller ID services, short messaging services, Colour Ring Tone, Internet data centre and Virtual Private Network services and etc.
(v) Represent primarily the aggregate amount of fees charged to customers for Best Tone information services and IT services and applications.
(vi) Represent primarily the aggregate amount of fees charged to customers for the provision of telecommunications network resource services and lease income from other domestic telecommunications operators and enterprise customers for the usage of the Group’s telecommunications networks and equipment.
(vii) Represent primarily revenue from sale, and repair and maintenance of equipment as well as the resale of mobile services (MVNO).

 

24


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

10. Network Operations and Support Expenses

Included in the Group’s network operations and support expenses are as follows:

 

     Six-month period ended 30 June  
     2015
RMB millions
     2014
RMB millions
 

Operating and maintenance

     20,713         15,527   

Utility

     5,944         5,777   

Property rental and management fee

     5,648         4,362   

Others

     4,919         3,666   
  

 

 

    

 

 

 
     37,224         29,332   
  

 

 

    

 

 

 

 

11. Personnel Expenses

Personnel expenses are attributable to the following functions:

 

     Six-month period ended 30 June  
     2015
RMB millions
     2014
RMB millions
 

Network operations and support

     18,171         15,126   

Selling, general and administrative

     9,908         9,516   
  

 

 

    

 

 

 
     28,079         24,642   
  

 

 

    

 

 

 

 

25


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

12. Other Operating Expenses

Other operating expenses consist of:

 

          Six-month period ended 30 June  
     Note    2015
RMB millions
     2014
RMB millions
 

Interconnection charges

   (i)      6,170         6,342   

Cost of goods sold

   (ii)      16,872         17,974   

Donations

        2         7   

Others

   (iii)      805         195   
     

 

 

    

 

 

 
        23,849         24,518   
     

 

 

    

 

 

 

Note:

 

(i) Interconnection charges represent amounts incurred for the use of other domestic and foreign telecommunications operators’ networks for delivery of voice and data traffic that originate from the Group’s telecommunications networks.
(ii) Cost of goods sold primarily represents cost of telecommunications equipment sold.
(iii) Others mainly include other surcharges related to VAT.

 

13. Net Finance Costs

Net finance costs comprise:

 

     Six-month period ended 30 June
     2015
RMB millions
  2014
RMB millions

Interest expense incurred

   2,517   3,014

Less: Interest expense capitalised*

   (155)   (155)
  

 

 

 

Net interest expense

   2,362   2,859

Interest income

   (164)   (130)

Foreign exchange losses

   11   19

Foreign exchange gains

   (49)   (12)
  

 

 

 

   2,160   2,736
  

 

 

 

*  Interest expense was capitalised in construction in progress at the following rates per annum

   3.8%–5.7%   4.2%–6.0%
  

 

 

 

 

26


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

14. Income Tax

Income tax in the profit or loss comprises:

 

     Six-month period ended 30 June  
     2015
RMB millions
     2014
RMB millions
 

Provision for PRC income tax

     3,922         4,020   

Provision for income tax in other tax jurisdictions

     28         34   

Deferred taxation

     (414      (493
  

 

 

    

 

 

 
     3,536         3,561   
  

 

 

    

 

 

 

A reconciliation of the expected tax expense with the actual tax expense is as follows:

 

          Six-month period ended 30 June  
    

Note

   2015
RMB millions
     2014
RMB millions
 

Profit before taxation

        14,544         15,035   
     

 

 

    

 

 

 

Expected income tax expense at statutory tax rate of 25%

   (i)      3,636         3,759   

Differential tax rate on PRC subsidiaries’ and branches’ income

   (i)      (185      (159

Differential tax rate on other subsidiaries’ income

   (ii)      (16      (25

Non-deductible expenses

   (iii)      141         123   

Non-taxable income

   (iv)      (39      (31

Others

   (v)      (1      (106
     

 

 

    

 

 

 

Actual income tax expense

        3,536         3,561   
     

 

 

    

 

 

 

 

27


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

14. Income Tax (continued)

 

Note:

 

(i) Except for certain subsidiaries and branches which are mainly taxed at preferential rate of 15%, the provision for mainland China income tax is based on a statutory rate of 25% of the assessable income of the Company, its mainland China subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the PRC.
(ii) Income tax provisions of the Company’s subsidiaries in Hong Kong and Macau Special Administrative Regions of the PRC, and in other countries are based on the subsidiaries’ assessable income and income tax rates applicable in the respective tax jurisdictions which range from 12% to 38%.
(iii) Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purposes.
(iv) Amounts represent miscellaneous income which are not subject to income tax.
(v) Amounts primarily represent tax deduction on prior year research and development expenses and losses on disposal of property, plant and equipment approved by tax authorities during the period.

 

15. Dividends

Pursuant to the shareholders’ approval at the Annual General Meeting held on 27 May 2015, a final dividend of RMB0.076120 (equivalent to HK$0.095) per share totaling RMB6,160 million in respect of the year ended 31 December 2014 was declared and paid on 17 July 2015.

Pursuant to the shareholders’ approval at the Annual General Meeting held on 29 May 2014, a final dividend of RMB0.076583 (equivalent to HK$0.095) per share totaling RMB6,198 million in respect of the year ended 31 December 2013 was declared and paid on 18 July 2014.

The Board of Directors has resolved not to pay an interim dividend.

 

16. Basic Earnings per Share

The calculation of basic earnings per share for the six-month period ended 30 June 2015 and 2014 is based on the profit attributable to equity holders of the Company of RMB10,980 million and RMB11,436 million, respectively, divided by 80,932,368,321 shares.

The amount of diluted earnings per share is not presented as there were no dilutive potential ordinary shares in existence for the periods presented.

 

28


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

17. Capital Commitments

As at 30 June 2015 and 31 December 2014, the Group had capital commitments as follows:

 

     30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Contracted for but not provided

     

Property

     743         422   

Telecommunications network plant and equipment

     7,563         6,743   
  

 

 

    

 

 

 
     8,306         7,165   
  

 

 

    

 

 

 

Authorised but not contracted for

     

Property

     707         466   

Telecommunications network plant and equipment

     12,098         6,361   
  

 

 

    

 

 

 
     12,805         6,827   
  

 

 

    

 

 

 

 

18. Fair Value Measurements of Financial Instruments

Financial assets of the Group include cash and cash equivalents, bank deposits, investments, accounts receivable, advances and other receivables. Financial liabilities of the Group include short-term and long-term debt and payable, other non-current liabilities, accounts payable, accrued expenses and other payables. The Group does not hold nor issue financial instruments for trading purposes.

Fair Value Measurements

Based on IFRS 13, Fair Value Measurement, the fair value of each financial instrument is categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

 

  Level 1:     fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments
  Level 2:     fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data
  Level 3:     fair values measured using valuation techniques in which any significant input is not based on observable market data

 

29


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

18. Fair Value Measurements of Financial Instruments (continued)

Fair Value Measurements (continued)

 

The fair values of the Group’s financial instruments (other than long-term debt and payable, other non-current liabilities and available-for-sale equity investment securities) approximate their carrying amounts due to the short-term maturity of these instruments.

The Group’s available-for-sale equity investment securities are categorised as level 1 financial instruments. The fair value of the Group’s available-for-sale equity investment securities is RMB1,912 million as at 30 June 2015 (31 December 2014: RMB945 million), based on quoted market price on a PRC stock exchange. The Group’s long-term investments, other than the available-for-sale equity investment securities, are unlisted equity interests for which no quoted market prices exist in the PRC and because their fair values cannot be measured reliably, so their fair values were not disclosed.

The fair values of long-term debt and payable and other non-current liabilities are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristics and maturities. The fair value measurement of long-term debt and payable and other non-current liabilities is categorised as level 2. The interest rates used by the Group in estimating the fair values of long-term debt and payable and other non-current liabilities, having considered the foreign currency denomination of the debt, ranged from 1.0% to 5.4% (31 December 2014: 1.0% to 6.6%). As at 30 June 2015 and 31 December 2014, the carrying amounts and fair values of the Group’s long-term debt and payable and other non-current liabilities were as follows:

 

     30 June 2015      31 December 2014  
     Carrying
amount
RMB millions
     Fair value
RMB millions
     Carrying
amount
RMB millions
     Fair value
RMB millions
 

Long-term debt and payable

     62,510         63,794         62,576         62,686   

Other non-current liabilities

     423         396         424         357   

During the period, there were no transfers among instruments in level 1, level 2 or level 3.

 

30


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

19. Related Party Transactions

 

  (a) Transactions with China Telecom Group

The Group is a part of companies under China Telecommunications Corporation, a company owned by the PRC government, and has significant transactions and business relationships with members of China Telecom Group.

The principal transactions with China Telecom Group which were carried out in the ordinary course of business are as follows:

 

          Six-month period ended 30 June  
    

Note

   2015
RMB millions
     2014
RMB millions
 

Purchases of telecommunications equipment and materials

   (i)      2,209         1,395   

Sales of telecommunications equipment and materials

   (i)      1,606         1,623   

Construction and engineering services

   (ii)      7,830         4,964   

Provision of IT services

   (iii)      66         81   

Receiving IT services

   (iii)      362         331   

Receiving community services

   (iv)      1,147         1,255   

Receiving ancillary services

   (v)      5,556         5,908   

Property lease income

   (vi)      15         18   

Property lease expenses

   (vi)      297         297   

Net transaction amount of centralised services

   (vii)      224         220   

Interconnection revenues

   (viii)      30         22   

Interconnection charges

   (viii)      212         173   

Internet applications channel services

   (ix)      188         180   

Interest on amounts due to and loans from China Telecom Group

   (x)      2,042         2,290   

Lease of CDMA network facilities

   (xi)      108         93   

Lease of inter-provincial transmission optic fibres

   (xii)      10         10   

Lease of land use rights

   (xiii)      8         8   

Note:

 

(i) Represent the amount of telecommunications equipment and materials purchased from/sold to China Telecom Group and commission paid and payable for procurement services provided by China Telecom Group.
(ii) Represent construction and engineering as well as design and supervisory services provided by China Telecom Group.
(iii) Represent IT services provided to and received from China Telecom Group.

 

31


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

19. Related Party Transactions (continued)

 

  (a) Transactions with China Telecom Group (continued)

Note: (continued)

 

(iv) Represent amounts paid and payable to China Telecom Group in respect of cultural, educational, health care and other community services.
(v) Represent amounts paid and payable to China Telecom Group in respect of ancillary services such as repairs and maintenance of telecommunications equipment and facilities and certain customer services.
(vi) Represent amounts received and receivable from/paid and payable to China Telecom Group for mutual leasing of properties.
(vii) Represent net amount shared between the Company and China Telecom Group for costs associated with centralised services. The amount represents amounts received or receivable for the net amount of centralised services.
(viii) Represent amounts received and receivable from/paid and payable to China Telecom Group for interconnection of local and domestic long distance calls.
(ix) Represent amounts received and receivable from China Telecom Group in respect of Internet applications channel services, including the provision of telecommunications channel and applications support platform and billing and deduction services, etc.
(x) Represent interest paid and payable to China Telecom Group with respect to the amounts due to China Telecommunications Corporation and loans from China Telecom Group (Note 6).
(xi) Represent amounts paid and payable to China Telecom Group primarily for lease of certain CDMA mobile telecommunications network (“CDMA network”) facilities located in Xizang Autonomous Region.
(xii) Represent amounts paid and payable to China Telecom Group for lease of certain inter-provincial transmission optic fibres within its service regions.
(xiii) Represent amounts paid and payable to China Telecom Group for leases of land use rights.

 

32


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

19. Related Party Transactions (continued)

 

  (a) Transactions with China Telecom Group (continued)

 

Amounts due from/to China Telecom Group are summarised as follows:

 

     30 June
2015
RMB millions
     31 December
2014
RMB millions
 

Accounts receivable

     436         329   

Prepayments and other current assets

     950         818   
  

 

 

    

 

 

 

Total amounts due from China Telecom Group

     1,386         1,147   
  

 

 

    

 

 

 

Accounts payable

     18,933         15,667   

Accrued expenses and other payables

     5,289         1,043   

Short-term debt

     19,686         19,398   

Long-term debt and payable

     61,710         61,710   
  

 

 

    

 

 

 

Total amounts due to China Telecom Group

     105,618         97,818   
  

 

 

    

 

 

 

Amounts due from/to China Telecom Group, other than short-term debt and long-term debt and payable, bear no interest, are unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third parties. The terms and conditions associated with short-term debt and long-term debt and payable due to China Telecom Group are set out in Note 6.

As at 30 June 2015 and 31 December 2014, no material allowance for doubtful debts was recognised in respect of amounts due from China Telecom Group.

 

  (b) Contributions to post-employment benefit plans

As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal, autonomous regional and provincial governments for its employees. The Group is required to make contributions to the retirement plans at rates ranging from 14% to 21% of the salaries, bonuses and certain allowances of the employees. A member of the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. Other than the above, the Group also participates in supplementary defined contribution retirement plans managed by independent external parties whereby the Group is required to make contributions to the retirement plans at fixed rates of the employees’ salaries, bonuses and certain allowances. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above.

 

33


Table of Contents

Notes to the Unaudited Interim Financial Statements

for the six-month period ended 30 June 2015

 

19. Related Party Transactions (continued)

 

  (b) Contributions to post-employment benefit plans (continued)

 

The Group’s contributions for the above plans for the six-month period ended 30 June 2015 were RMB2,998 million (six-month period ended 30 June 2014: RMB2,865 million).

The amount payable for contributions to the above defined contribution retirement plans as at 30 June 2015 was RMB584 million (31 December 2014: RMB669 million).

 

  (c) Transactions with other government-related entities in the PRC

The Group is a government-related enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the People’s Republic of China through government authorities, agencies, affiliations and other organisations (collectively referred to as “government-related entities”).

Apart from transactions with parent company and its fellow subsidiaries (Note 19(a)), the Group has transactions that are collectively but not individually significant with other government-related entities, which include but are not limited to the following:

 

    rendering and receiving services, including but not limited to telecommunications services

 

    sales and purchases of goods, properties and other assets

 

    lease of assets

 

    depositing and borrowing

 

    use of public utilities

These transactions are conducted in the ordinary course of the Group’s business on terms comparable to the terms of transactions with other entities that are not government-related. The Group prices its telecommunications services and products based on government-regulated tariff rates, where applicable, or based on commercial negotiations. The Group has also established procurement policies and approval processes for purchases of products and services, which do not depend on whether the counterparties are government-related entities or not.

The directors believe the above information provides appropriate disclosure of related party transactions.

 

34


Table of Contents

Other Information

Management Discussion and Analysis

According to paragraph 40 of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), save as disclosed herein, the Company confirms that the current company information in relation to those matters set out in paragraph 32 of Appendix 16 has not changed materially from the information disclosed in the Company’s 2014 Annual Report.

Purchase, Sale or Redemption of Securities

During the six-month period ended 30 June 2015, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

Directors’ and Supervisors’ Interests and Short Positions in Shares, Underlying Shares and Debentures

As at 30 June 2015, none of the Directors or Supervisors had any interests or short positions in any shares, underlying shares of equity derivatives or debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the “SFO”)) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”).

As at 30 June 2015, the Company has not granted its Directors or Supervisors, or their respective spouses or children below the age of 18 any rights to subscribe for the shares or debentures of the Company or any of its associated corporations and none of them has ever exercised any such right to subscribe for the shares or debentures.

Change of Directors and Supervisors since the Date of the 2014 Annual Report

The changes in the information relating to the Directors and Supervisors since the date of the Company’s 2014 Annual Report are set out below:

On 27 May 2015, Mr. Sui Yixun and Mr. Ye Zhong were approved to be appointed as supervisors of the Company respectively at the Annual General Meeting of the Company for year 2014.

Mr. Tse Hau Yin, Aloysius, the Independent Non-Executive Director of the Company, has been appointed as the Independent Non-Executive Director of China Huarong Asset Management Company, Limited. Meanwhile, Linmark Group Limited, in which Mr. Tse acts as an Independent Non-Executive Director, has now been renamed as Daohe Global Group Limited. Mr. Tang Qi, the Employee Representative Supervisor of the Supervisory Committee of the Company, has been appointed as the Senior President of the Shandong branch of the Company and has ceased to be the Vice Chairman of the Labour Union of China Telecommunications Corporation and the Company.

Save as stated above, there is no other information on the Directors or Supervisors of the Company required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules. The updated biographical details of the Directors and Supervisors are available on the website of the Company (www.chinatelecom-h.com).

 

35


Table of Contents

Other Information

 

Material Interests and Short Positions in Shares and Underlying Shares of the Company

As at 30 June 2015, the interests or short position of persons who are entitled to exercise or control the exercise of 5% or more of the voting power at any of the Company’s general meetings (excluding the Directors and Supervisors) in the shares and underlying shares of equity derivatives of the Company as recorded in the register required to be maintained under Section 336 of the SFO are as follows:

 

Name of Shareholder

  

Number of

shares held

  

Type of Shares

   Percentage
of the
respective
type of shares

in issue
(%)
    Percentage
of the
total number
of shares
in issue
(%)
   

Capacity

China Telecommunications Corporation

  

57,377,053,317

(Long position)

   Domestic shares      85.57     70.89  

Beneficial owner

Guangdong Rising Assets Management Co., Ltd.

  

5,614,082,653

(Long position)

   Domestic shares      8.37     6.94  

Beneficial owner

JPMorgan Chase & Co.

  

1,664,665,573

(Long position)

   H shares      11.99     2.06  

258,583,732 shares as beneficial owner; 314,666,600 shares as investment manager; 55,400 shares as trustee (other than a bare trustee) and 1,091,359,841 shares as custodian corporation/approved lending agent

  

 

48,881,111

(Short position)

  

 

H shares

  

 

 

 

0.35

 

 

 

 

 

0.06

 

 

 

Beneficial owner

  

 

1,091,359,841

(Shares available

for lending)

  

 

H shares

  

 

 

 

7.86

 

 

 

 

 

1.35

 

 

 

Custodian corporation/ approved lending agent

BlackRock, Inc.

  

1,117,267,132

(Long position)

   H shares      8.05     1.38  

Interest of controlled corporation

Commonwealth Bank of Australia

  

956,625,074

(Long position)

   H shares      6.89     1.18  

Interest of controlled corporation

Save as disclosed above, as at 30 June 2015, in the register required to be kept under Section 336 of the SFO, no other persons were recorded to hold any interests or short positions in the shares or underlying shares of the equity derivatives of the Company.

 

36


Table of Contents

Other Information

 

Audit Committee

The audit committee has reviewed with management and the Company’s international auditor, Deloitte Touche Tohmatsu, the accounting principles and practices adopted by the Group and discussed internal control and financial reporting matters including the review of the Company’s Interim Report for the six months ended 30 June 2015.

Compliance with the Corporate Governance Code

The Company attaches great importance to corporate governance. We continued to make efforts in improving the Company’s internal control mechanisms, strengthening information disclosure and enhancing the Company’s transparency, developing corporate governance practices and protecting shareholders’ interests to the maximum degree.

The roles of Chairman and Chief Executive Officer of the Company were performed by the same individual, for the six-month period ended 30 June 2015. In the Company’s opinion, through supervision of the Board of Directors and Independent Non-Executive Directors, and effective control of the Company’s internal check and balance mechanism, the same individual performing the roles of Chairman and Chief Executive Officer can achieve the goal of improving the Company’s efficiency in decision-making and execution and effectively capture business opportunities. Many international leading corporations also have a similar arrangement.

Save as stated above, the Company has been in compliance with all the code provisions under the Corporate Governance Code as set out in Appendix 14 of the Listing Rules throughout the six-month period ended 30 June 2015.

Compliance with the Model Code for Securities Transactions by Directors and Supervisors

The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules to govern securities transactions by Directors and Supervisors. Further to the specific enquiries made by the Company to Directors and Supervisors, they have confirmed their compliance with the Model Code throughout the period from 1 January 2015 to 30 June 2015.

 

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