UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

OR

For the fiscal year ended December 31, 20152016

OR

For the transition period from             to             

OR

Date of event requiring this shell company report

Commission file number 1-31517

(Exact Name of Registrant as Specified in Its Charter)

China Telecom Corporation Limited

(Translation of Registrant’s Name into English)

People’s Republic of China

(Jurisdiction of Incorporation or Organization)

31 Jinrong Street, Xicheng District

Beijing, People’s Republic of China 100033

(Address of Principal Executive Offices)

Mr. Xu FeiMs. Wong Yuk Har, Rebecca

China Telecom Corporation Limited

31 Jinrong Street, Xicheng District38/F, Dah Sing Financial Center

Beijing, People’s Republic of China 100033108 Gloucester Road

Wanchai, Hong Kong

Email: xufei@chinatelecom.com.cnrebecca.wong@chinatelecom-h.com

Telephone: (+86-10) 5850 2281852) 2582 5819

Fax: (+86-10) 6601 0728852) 2157 0010

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

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

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

None

(Title of Class)

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

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2015,2016, 67,054,958,321 domestic shares and 13,877,410,000 H shares, par value RMB1.00 per share, were issued and outstanding. H shares are ordinary shares of the Company listed on The Stock Exchange of Hong Kong Limited.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x☒    No  ¨☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨☐    No  x☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒    No  ¨☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨☐    No  x☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x☒    Accelerated Filer  ¨☐    Non-Accelerated Filer  ☐    Emerging Growth Company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards^¨† provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

U.S. GAAP  ¨☐

International Financial Reporting Standards as issued by the International Accounting Standards Board x☒

Other  ¨☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨☐    Item 18  ¨☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐    No  x

☒

CHINA TELECOM CORPORATION LIMITED

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

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

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

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. We are under no obligation to update these forward-looking statements and do not intend to do so. Actual results may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Item 3. Key Information—D. Risk Factors” and the following:

Please also see “D. Risk Factors” under Item 3.

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CERTAIN DEFINITIONS AND CONVENTIONS

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

PART I

Not applicable.

Not applicable.

The following table presents our selected financial data. The selected consolidated statements of financial position data as of December 31, 20142015 and 2015,2016, and the selected consolidated statements of comprehensive income (except for earnings per ADS) and consolidated cash flow data for the years ended December 31, 2013, 2014, 2015 and 2015,2016, are derived from our audited consolidated financial statements included elsewhere in this annual report, and should be read in conjunction with those consolidated financial statements. The selected consolidated statements of financial position data as of December 31, 2011, 2012, 2013 and 20132014 and the selected consolidated statements of comprehensive income (except for earnings per ADS) and consolidated cash flow data for the years ended December 31, 20112012 and 20122013 are derived from our consolidated financial statements which are not included in this annual report. Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.

The selected financial data reflect the acquisitions and divestment in 2012 and 2013, the establishment of new subsidiaries in 2014 and the tower assets disposal in 2015 described under “Item 4. Information on the Company—A. History and Development of the Company—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities”, “—Changes in Our Corporate Organization in 2013”, “—Changes in Our Corporate Organization in 2014” and “Establishment of the Tower Company and the Disposal and UseLease of the Telecommunications Towers”.

On December 31, 2012, we purchased from China Telecom Group certain assets and associated liabilities relating to the CDMA network located in 30 provinces, municipalities and autonomous regions in the PRC for a total consideration of approximately RMB87,210.35 million, of which RMB25,500 million was paid in January 2013 and the balance will be payable at any time on or before the fifth anniversary of December 31, 2012, or the Mobile Network Acquisition. The Mobile Network Acquisition was recognized as an assets acquisition and the assets and associated liabilities acquired by the Company are stated at their respective purchase prices, including related tax expenses, on December 31, 2012.

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Pursuant to the shareholders’ approval at the annual general meeting held on May 27, 2015,25, 2016, a final dividend of RMB6,160RMB6,489 million (RMB0.076120(RMB0.080182 per share equivalent to HK$0.095 per share, pre-tax) for the year ended December 31, 20142015 was declared, all of which has been fully paid. Pursuant to a resolution passed at the Directors’ meeting on March 23, 2016,21, 2017, a final dividend of approximately RMB6,461RMB7,548 million (RMB0.079829(RMB0.093261 equivalent to HK$0.0950.105 per share, pre-tax) for the year ended December 31, 20152016 was proposed for shareholders’ approval at the forthcoming annual general meeting.

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Exchange Rate Information

Our business is primarily conducted in China and substantially all of our revenues are denominated in Renminbi. We present our historical consolidated financial statements in Renminbi. In addition, solely for the convenience of the reader, this annual report contains translations of certain Renminbi and Hong Kong dollar amounts into U.S. dollars at specific rates. For any date and period, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise indicated, conversions of Renminbi or Hong Kong dollars into U.S. dollars in this annual report are based on the exchange rate on December 31, 2015 (RMB6.477830, 2016 (RMB6.9430 to US$1.00 and HK$7.75077.7534 to US$1.00). We make no representation that any Renminbi or Hong Kong dollar amounts could have been, or could be, converted into U.S. dollars or vice versa, as the case may be, at any particular rate, the rates stated below, or at all. For a detailed explanation of the risk of currency rate fluctuations, please see “D. Risk Factors—Risks Relating to the People’s Republic of China— Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.” under this Item. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange. Examples of such government regulations and restrictions are set forth in “Risk Factors—Risks Relating to the People’s Republic of China—Government control of currency conversion may adversely affect our financial condition.”

On April 22, 2016,21, 2017, the daily exchange rates reported by the Federal Reserve Board was RMB6.5004RMB6.8845 to US$1.00 and HK$7.75647.7757 to US$1.00. The following table sets forth additional information concerning exchange rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we use in this annual report or will use in the preparation of our future periodic reports or any information to be provided to you.

The following table sets forth the average exchange rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for each of 2011, 2012, 2013, 2014, 2015 and 20152016 calculated by averaging the exchange rates on the last day of each month during each of the relevant years.

Average Exchange Rate

Not applicable.

Not applicable.

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Risks Relating to Our Business

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

The telecommunications industry in the PRC is rapidly evolving.

After the industry restructuring in 2008, China Unicom (Hong Kong) Limited (formerly known as China Unicom Limited), or China Unicom, and our Company have full-service capabilities and compete with each other in both wireline and wireless telecommunications services. China Mobile Limited, or China Mobile, continues to be the leading provider of mobile telecommunications services in the PRC and competes with us in mobile telecommunications services and other telecommunications services.

In particular, in December 2013, each of China Mobile Communications Corporation, or China Mobile Group, China Telecom Group and China United Network Communications Group Company Limited, (formerly known as China United Telecommunications Corporation prior to its merger with China Network Communications Group Corporation), or Unicom Group, received a license from the MIIT to operate 4G business nationwide. The licenses permit each of China Mobile Group, China Telecom Group and Unicom Group to provide 4G services based on LTE/Time Division Duplex standard, or TD-LTE technologies. In addition, in February 2015, each of China Telecom Group and Unicom Group, was granted by the MIIT the permit to provide 4G service based on Frequency-Division Long-Term Evolution standard, or LTE FDD technologiesservices nationwide. We have been authorized by China Telecom Group to operate 4G business nationwide based on both TD-LTELTE/Time Division Duplex standard (“TD-LTE”) technologies and Frequency Division Long Term Evolution standard (“LTE FDDFDD”) technologies. We cannot assure you that: (i) our 4G services will deliver the quality and levels of services currently anticipated; (ii) we will be able to provide all planned 4G services or we will be able to provide such services on schedule; (iii) there will be sufficient demand for 4G services for us to deliver these services profitably; (iv) our competitors’ 4G, or newer technology based, services will not be more popular among potential subscribers; or (v) we will not encounter unexpected technological difficulties in providing 4G services. The failure of any of these possible developments to occur could impede our growth, which could have a material adverse effect on our business, financial condition and results of operations. We expect that the market competition will be further intensified as a result of our competitors expanding their 4G services, which could materially and adversely affect our business and prospect.

In December 2013, China Mobile Group received permission from the MIIT to authorize China Mobile to operate fixed-line telecommunications businesses. Prior to December 2013, China Unicom, China Tietong Telecommunications Corporation, or China Railcom, which is a wholly-owned subsidiary of China Mobile Group, CITIC NETWORKS Co., Ltd., and our Company were the only operators licensed by the MIIT to provide fixed-line telecommunications services in China. AtIn December 2013, China Mobile Group received permission from the end ofMIIT to authorize China Mobile to operate fixed-line telecommunications businesses. In December 2015, China Mobile completed its acquisition from China Mobile Group of the fixed-line telecommunications businesses operated by China Railcom. In May 2016, China Mobile’s entry intoRadio and Television Network Co. Ltd. received license from the MIIT to operate fixed-line broadband marketbusinesses. The entry of China Mobile and China Radio and Television Network Co. Ltd. has intensified and may continue tofurther intensify the competition in this sector, which could have a material adverse effect on our business, financial condition and results of operations.business.

We also face increasing competition from other competitors outside the telecommunications industry. Television cable companies providing fixed-line broadband services, Internet services providers and mobile software and application developers (such as Over-the-Top messaging services providers who offer contents and services on the Internet without their proprietary telecommunications network infrastructure), are competing with us in voice or data services. During the past few years, some of our traditional revenue contributors have experienced a slowdown in the growth rate or negative growth,primarily due to the alternative means of communication becoming increasingly popular among the consumers. For example, the aggregateSee “ – D. Risk Factors – Risks Relating to our Business – We may further lose wireline telephone subscribers and revenues contributed byderived from our wireline and mobile voice services grew at a ratemay continue to decline, which may adversely affect our results of 4.7% in 2013 but decreased at a rate of 8.9% in 2014 and further decreased at a rate of 11.0% in 2015. We cannot assure you that such trend will not continue with respect to some of our traditional services, or our other services will not experience slowdown amid the intense market competition, which could have a material adverse effect on our business,operations, financial condition and results of operations.prospects.”

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In addition, the PRC government has taken various initiatives to encourage competition in the telecommunications industry, such as the three-network convergence policy and the policy encouraging non-State owned companies to enter the industry. For more details of the three-network convergence policy, please see “Item 4. Information on the Company – B. Business Overview – Regulatory and Related Matters – Three-Network Convergence Policy.” In May 2010, the PRC State Council issued Certain Opinion on Encouraging and Guiding the Sound DevelopmentFor a series of Private Investment, encouraging private investment in industry sectors that are mainly state-controlled, such as basic telecommunications services. In June 2012, the MIIT issued Opinions on Encouraging and Guiding Private Investment in the Telecommunications Industry, encouraging private-sector investment in the telecommunications industry. On May 17, 2013, the MIIT issued the Trial Plan of Mobile Telecommunications Resale Business, pursuant to which the MIIT would grant qualified companies mobile telecommunications resale business approvals on a pilot basis which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators and resell such services to customers. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunications Resale Business , pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar businesses of the mobile networks operators. All of thesegovernment measures are expected to encourage non-State owned companies to provide telecommunications services that could compete with our services. On December 25, 2014,services, see “Item 4. Information on the MIIT issued the Notice on Opening the Broadband Access Market to Private Capital, encouraging private capital to invest in the construction and operation of the broadband access network and cooperate with basic telecommunications operators in various ways to provide broadband access services and broadband resale services to customers and determining 17 cities including Beijing to be the first group of cities that would open their broadband access markets to private capital on a pilot basis. On September 23, 2015, the MIIT issued the Notice on Further Broadening the Scope of Trial Opening of the Broadband AccessCompany – B. Business to include another 44 cities into the trial scope that opens up the broadband access market to private capital.Overview – Competition.” As of December 31, 2015,2016, the MIIT granted broadband access pilot enterprises licenses to over 50200 private companies. As of April 19,In 2016, 67 cities haveMIIT further opened up their broadband access markets to private capital.capital in seven provinces on a province-wide basis and an additional 12 pilot cities. As of December 31, 2015, we had entered into resale contracts with 25 out of the2016, 42 mobile virtual network operators which had obtained the licenses from the MIIT, and 11there were a total of these companies had started to offer 4G services.43 million users of mobile virtual network. As a result, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition.

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

The growthdevelopment of our mobile business is subject to uncertainties involved in the future operations ofdependent on the Tower Company.

OnIn July 11, 2014, the Company, China United Network Communications Corporation Limited (“CUCL”) and China Mobile Communication Company Limited (“CMCL”) entered into a Promoters’ Agreement for China Communications Facilities Services Corporation Limitedmade the decision to jointly establish China Communications Facilities Services Corporation Limited (later renamed(currently known as China Tower Corporation Limited, the “Tower Company”). The Tower Company will be responsible for constructing, and operating telecommunications towers and ancillary facilities, whilecarried out the basic telecommunications services providers, including us, will rent these telecommunications assets from the Tower Company. According to the policiesestablishment of the MIIT, starting from January 1, 2015, in principle, the three telecommunications operators, including us, will no longer construct their own telecommunications towers. On October 14, 2015, the Company, CUCL, CMCL, the Tower Company and certain other parties entered into an Agreement on Purchase of Stock Tower-related Assets by Issuance of Shares and Payment of Cash, or the Transfer Agreement, pursuant to which each of the Company, CUCL and CMCL agreed to sell certain telecommunications towers and related assets to the Tower Company in exchange for new shares issued by the Tower Company, among others. On January 29, 2016, the Company and the Tower Company entered into a Share Subscription Agreement to acknowledge the number and price of the shares issued by the Tower Company to the Company. Currently, the Company and Tower Company have reached preliminary understanding and are in the process of negotiating arrangements in respect of our usagetransfer of certain telecommunications towers and related assets owned by the Tower Company.tower assets. See “Item 4. Information on the Company—A. History and Development of the Company—Establishment of the Tower Company and the Disposal and UseLease of the Telecommunications Towers”.

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The Tower Company will be of significant importance to the development of our mobile business and our results of operations. In particular, given that, in principle, we, are expected to use the telecommunications towers ownedCUCL and CMCL expect that construction of new tower assets would be carried out by the Tower Company, for our mobile business.business depends on the lease arrangement between us and the Tower Company. Because we do not control the Tower Company, we cannot assure you that it will act in the best interests of us. Given its short operational history, the operations of theDue to our reliance on Tower Company are subject to various uncertainties, including uncertainties as to the construction progress of the telecommunications towers and the quality of services provided by the Tower Company. In addition, we are in the process of negotiating with the Tower Company regarding the arrangements for our usage of its telecommunications towers and relatedtower assets, and we cannot assure you that we will be able to use such telecommunications towers and related assets on terms and conditions that are favorable to us. If the operations of the Tower Company cannot be carried out in a smooth and timely manner, or if we fail to use the relevant telecommunications towers and relatedtower assets at our desired locations and on terms and conditions that are favorable to us in order to expand our mobile network coverage, or if we cannot receive quality services on a timely basis from the Tower Company, the growth of our mobile business as well as our financial condition and results of operations may be materially and adversely affected.

In addition, as part of its periodic review of our filings, the staff of the Division of Corporation Finance of the SEC sent us three rounds of comments in September 2016, November 2016 and February 2017, respectively, regarding our annual report on Form 20-F for the fiscal year ended December 31, 2015. These comments mainly relate to the background, execution process and accounting treatments of the aforesaid transactions with Tower Company. We have responded to the latest comments in March 2017, and have not yet received a formal reply from the SEC to our latest response letter. Thus we do not know if the SEC considers certain comments to remain unresolved, and whether and how those unresolved comments could affect any of our past or current disclosure. As such, there remains uncertainty whether we would be required to amend our past or current disclosure, including the financial statements, which could result in us incurring costs and require our management and employees to devote further efforts on this matter. To the extent that any such amendment occurs, we cannot assure you that it would not cause any adverse effect on our stock price.

We may further lose wireline telephone subscribers and revenues derived from our wireline voice services may continue to decline, which may adversely affect our results of operations, financial condition and prospects.

We continued to lose wireline telephone subscribers and revenues derived from our wireline voice services continued to decline during the past several years mainly due to the increasing popularity of mobile voice services and other alternative means of communication, such as Over-the-Top messaging services. Tariffs for mobile voice services have continued to decrease in recent years, which further accelerated substitution of the wireline voice services by the mobile voice services. The number of our wireline telephone subscribers decreased by 7.9%6.4% at the end of 20142015 compared to that at the end of 20132014 and further decreased by 6.4%5.6% at the end of 2015.2016. Revenues from our wireline voice services decreased by 13.1%11.8% in 20142015 compared to 20132014 and further decreased by 11.8%12.2% in 2015.2016. The percentage of revenues derived from our wireline voice services out of our total operating revenues continued to decrease, from 12.0% in 2013 to 10.4% in 2014 andto 8.9% in 2015.2015 and 7.4% in 2016.

We have been taking various measures in order to mitigate the impact of loss of our wireline telephone subscribers and stabilize our revenues from wireline voice services. See “Item 4. Information on the Company—B. Business Overview—Our Products and Services—Wireline Voice Services.” However, we cannot assure you that we will be successful in mitigating the adverse impact of the substitution of wireline voice services by mobile voice services and other alternative means of communication or in slowing down the decline of our revenues generated from wireline voice services. Migration from wireline voice services to mobile services and other alternative means of communication may further intensify in the future, which may affect the financial performance of our wireline voice services and thus adversely affect our results of operations, financial condition and prospects as a whole.

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

China Telecom Group, a wholly state-owned enterprise, owned approximately 70.89% of our outstanding shares as of April 22, 2016.24, 2017. Accordingly, subject to our Articles of Association and applicable laws and regulations, China Telecom Group, as our controlling shareholder, will continue to be able to exercise significant influence over our management and policies by:

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

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

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

The interests of China Telecom Group and its other subsidiaries as providers of these services and facilities may conflict with our interests. We currently have limited alternative sources of supply for these services and facilities. Therefore, we have limited leverage in negotiating with China Telecom Group and its other subsidiaries over the terms for the provision of these services and facilities. Termination or adverse changes of the terms for the provisions of these services and facilities could materially and adversely affect our business, results of operations and financial condition. See “Item 4. Information on the Company—A. History and Development of the Company—Industry Restructuring and Our Acquisition of the CDMA Business in 2008” and “—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for a description of the services and facilities provided by China Telecom Group and its other subsidiaries.

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

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

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

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

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

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

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

The telecommunications market is characterized by rapid advancements in technology, evolving industry standards and changes in customer needs. We cannot assure you that we will be successful in responding to these developments. In addition, new services or technologies, such as mobile Internet, the three-network convergence, cloud computing and Internet of Things, may render our existing services or technologies less competitive. In the event we do take measures to respond to technological developments and changes in industry standards, the integration of new technology or industry standards or the upgrading of our networks may require substantial time, effort and capital investment. For example, we continuehave begun to make significant investment to improve our broadband network, includingresearch and develop Software-Defined Networking (“SDN”) and Network Functions Virtualization (“NFV”) technologies. These new virtualized networks will increase the upgradeflexibility of optic fiber coverage capacity, and our mobile network. However, we may not be able to recover our investment as expected.

Our ability to respond to technological developments may also be adversely affected by external factors, some of which are beyond our control. For example, we have started implementing Internet Protocol version 6, or IPv6, the next-generation Internet Protocol version, on our networks. However, the successful deployment and application of IPv6 dependssuch cutting edge technologies depend on a number of external factors, including among others, timely developmentthe integration of IPv6-compatible deviceslegacy networks and applications by third-party suppliers. If the future transition to IPv6 is delayed due to factors beyond our control, we may face obstacles in further developing our Internet-related services in the future.cloud security related challenges. We cannot assure you that we will succeed in integrating these new technologies and industry standards or adapting our network and systems in a timely and cost-effective manner, or at all. Our inability to respond successfully and cost-efficiently to technological or industry developments may materially and adversely affect our business, results of operations and competitiveness.

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Our ability to respond to technological developments may also be adversely affected by external factors, some of which are beyond our control. For example, we began our research on 5G technology. However, various details concerning 5G services are still uncertain, including the timing of the issuance of 5G permits, the frequency bands allocated to 5G services, relevant regulations, as well as the technological standard for 5G services. If we are unable to respond to these uncertainties, such inability may materially and adversely affect our business in the future.

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

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

Our network may be vulnerable to unauthorized access, computer viruses and other disruptive problems. We cannot assure you that the security measures we have implemented will not be circumvented or otherwise fail to protect the integrity of our network, including our mobile network. Unauthorized access could jeopardize the security of confidential information stored in our customers’ computer systems and mobile phone systems and may subject us to litigations, liabilities for information loss and/or reputational damage. Eliminating computer viruses and other security problems may also require interruptions, delays or suspension of our services, reduce our customer satisfaction and cause us to incur costs.

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

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

Communications fraud, in which a person defrauds another by means of telecommunications technologies including SMS, telephone, and Internet, poses a risk to us. If communications fraud is committed over our network, we may incur liability as a result of the inadequacy in our measures to prevent such fraud. On September 23, 2016, six departments including the Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Public Security, the MIIT, the People’s Bank of China and the China Banking Regulatory Commission jointly released the Announcement on Preventing and Cracking Down on Telecom and Internet Fraudsand the MIIT issued the Implementation Opinions on the Work of Further Prevention and Crack Down on Communications Fraudon November 7, 2016. We have implemented various measures to strengthen our management and control over sales and distribution channels, including full-scale implementation of the compliance review of sales agencies, real name verification of employee numbers, awareness campaigns as well as taking and storing the photo of customers when they conduct business with us. However, there is no assurance that such measures will prevent communications fraud effectively. Communications fraud as a result of our failure in implementing the real name registration measure may result in claims being brought against us and may damage our reputation and could have an adverse effect on our business and results of operations.

Risks Relating to the Telecommunications Industry in the PRC

The current and future government regulations and policies that extensively govern the telecommunications industry may limit our flexibility in responding to market conditions as well as competition, or changes inand may change our cost structure.

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

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Other PRC governmental authorities also take part in regulating tariff policies, capital investment and foreign investment in the telecommunications industry. The regulatory framework within which we operate may constrain our ability to implement our business strategies and limit our flexibility to respond to market conditions or to changes in our cost structure. For example, in light of the Overview of the Plan of Achieving Coordinated Development of Beijing Municipality, Tianjin Municipality and Hebei Province which was passed on April 30, 2015 by the PRC government, we cancelled the long-distance and roaming tariffs for voice services within the tariff zones of Beijing Municipality, Tianjin Municipality and Hebei Province so that our customers are only charged with local usage tariff for our voice services provided within the tariff zones. In addition, on May 20, 2015, the office of the State Council promulgated the Guidance Opinions Regarding Expediting the Development of the High-Speed Broadband Network and Promoting the Speed Upgrade and Tariff Reduction, calling for the telecommunications operators to reduce the data tariffs. In order to further implement such policy requirements,As a result, we carried out a series of measures, including launching the upgrade service in 2015 October which would allow handset data subscribers who subscribe to our monthly data packages to rollover the unused data remaining in the monthly packages to the next month. In order to further implement the policy requirements of the PRC government regarding network speed upgrade and tariff reduction, we will cease to charge handset subscribers domestic long distance and roaming fees commencing before October 1, 2017. Meanwhile, we will reduce the fees of international long distance calls and significantly reduce the tariff of Internet dedicated line access for small and medium enterprises during the year. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunication Resale Business , pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar businesses of the mobile networks operators. On December 1, 2016, the amended PRC Regulations on the Management of Radio Operationcame into effect. The amended provision provided that a permit is required for using certain radio frequencies, which may be obtained through a bidding process or auctions. As such, we may incur additional costs in the future when we need to obtain the permit to use certain radio frequencies, such as the frequency bands for 5G, which will affect our cost structure. We may face further policy requirements imposed by the PRC government on network speed upgrade, tariff reduction and price adjustment in the future. Any such requirements could materially adversely affect our revenues, profitability and results of operations. In addition, the PRC government has taken various initiatives and promulgated a number of regulations to encourage private capital to invest in the telecommunications industry, all of which have intensified, and are expected to continue to intensify, the competition in the telecommunications industry in the PRC. See “ – D. Risk Factors – Risks Relating to our Business – We face increasing competition, which may materially and adversely affect our business, financial condition and results of operations.”

The regulations and policies that govern the telecommunications industry in the PRC have experienced continuous changes in the past several years. The interpretation and enforcement of the PRC’s World Trade Organization commitments regarding telecommunications services may also affect telecommunications regulations. Possible future changes to regulations and policies of the PRC government governing the telecommunications industry could adversely affect our business and operations. For example, to provide a uniform regulatory framework for the orderly development of the telecommunications industry, the PRC government is currently preparing a draft telecommunications law. If and when the telecommunications law is adopted by the National People’s Congress or its Standing Committee, it is expected to provide a new regulatory framework for telecommunications regulation in the PRC. We cannot be certain how this law will affect our business and operations and whether it will contain more stringent regulatory requirements than the current telecommunications regulations. Any significant future changes in regulations or policies that govern the telecommunications industry may have a material adverse effect on our business and operations.

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

Under the Telecommunications Regulations promulgated by the State Council, telecommunications service providers in the PRC are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government. The MIIT has the authority to delineate the scope of universal service obligations. The MIIT, may also select universal service providers through a tendering process. The MIIT, together with other governmental authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services. The PRC government currently uses financial resources to compensate for the expenses incurred in the “Village to Village” and the “Broadband China” projects before the establishment of a universal service fund. The State Council issued the NoticeSee “Item 4. Information on the “Broadband China” PolicyCompany – B. Business Overview – Regulatory and the Implementation Plan on August 1, 2013, which included the provision of broadband services to villages as part of the universal service obligations of telecommunications service providers and mentioned improving the compensation scheme for the expenses incurred by the telecommunications services providers in undertaking the “Broadband China” projects in the villages. On December 24, 2015, the MOF and the MIIT jointly promulgated the Notice on TelecommunicationsRelated Matters – Universal Service Pilot Work which sets up certain goals for the telecommunication operators, including broadband coverage in 98% of the administrative villages and over 12Mbps broadband access capacity in rural villages, by 2020. Pursuant to the notice, the central government subsidies will be granted to the pilot areas determined by the MOF and the MIIT and the universal services providers will be selected through an open bidding process.Services.” However, the compensation from the PRC government may not be sufficient to cover all of our expenses for providing the telecommunications services under the relevant“Village to Village” and the ��Broadband China” projects.

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

Implementation of a value-added tax to replace the business tax in the PRC has had, and in the short term will continue to have, a material and adverse effect on our revenues and profitability.

Our business operations in China are currently subject to PRC value-added tax, or VAT. On November 16, 2011, the Ministry of Finance, or the MOF, and the State Administration of Taxation, or the SAT, introduced a pilot tax program under which the PRC business tax will be replaced with a VAT. On April 29, 2014, the MOF and the SAT announced that the pilot program would be extended to cover the telecommunications industry. Effective from June 1, 2014, the pilot tax rate for basic telecommunications services (including voice communication and lease or sale of network resources) is 11% and the pilot tax rate for value-added telecommunications services (including, among others, internet access services, short and multimedia messaging services, transmission and application service of electronic data and information) is 6%. On March 18, 2016, the State Council standing committee meeting resolved to expand the VAT pilot program to all other industries which were previously subject to the PRC business tax starting from May 1, 2016. On March 23, 2016, the SAT issued the Notice on Expanding the Pilot Program of Replacing the Business Tax with VAT, promulgating the relevant implementing rules.

The operating revenues are presented in the financial statements as excluding any VAT. Some of the expenditures of the Company do not qualify for input VAT credits, including, among others, depreciation and amortization and personnel expenses. In addition, the actual deduction of some of our expenditures as input VAT credits will depend on the application of VAT to the other industries. As a result, the VAT reform has had, and is expected to continue to have, an adverse effect on the revenues and operating profit of the Company in the short term. In the long term, the overall VAT of the Company is expected to decrease.See “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 – Qualitative and Quantitative Analysis of the VAT Reform Impact.”

We have experienced incidents of executive misconduct in the past, which could adversely impact our reputation, our financial condition and results of operations as well as the trading price of our securities.

According to the information disclosed on the website of Communist Party of China Central Commission for Discipline Inspection and Ministry of Supervision of the PRC on December 27, 2015, Mr. Chang Xiaobing, the former Chairman of Unicom Group and the then Chairman of China Telecom Group was under investigation by such authorities for suspected serious disciplinary violations. Mr. Chang was appointed as the chief executive officer of the Company on September 1, 2015 and the director and chairman of the Company on October 23, 2015. On December 30, 2015, Mr. Chang resigned from his positions as the executive director, chairman and chief executive officer of the Company with effect from the same date. Prior to his resignation, Mr. Chang had worked at the Company for four months.

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Mr. Chang is currently on trial in a PRC court and is awaiting sentencing. The investigation and trial conducted by the PRC authorities on Mr. Chang may harm our reputation and adversely affect our financial condition and results of operations as well as the trading price of our securities.

Risks Relating to the People’s Republic of China

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

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

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

While the PRC’s economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of the PRC, but may also have a negative effect on us.

Economic developments in the PRC have a significant effect on our financial condition and results of operations. Although the PRC has been one of the world’s fastest growing economies in terms of GDP growth in the past 30 years, the global financial crisis that unfolded in 2008 and continued in the past few years, coupled with the on-going structural reform of the PRC economy, has led to a marked slowdown in, and may continue to slow down, the economic growth of the PRC. For example, the GDP growth rate of the PRC decreased from 11.4% in 2007 to 6.9%6.7% in 2015.2016. The PRC economy may continue to grow at a relatively slow pace in the next few years. There is no assurance that the GDP growth rate of the PRC will not further decline. A slowdown in economic growth could reduce business activities and demand for our services. The global economy may continue to deteriorate in the future and continue to have an adverse impact on the PRC economy. Any significant slowdown in the PRC economy could have a material adverse effect on the PRC telecommunications industry as well as our business and operations.

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Government control of currency conversion may adversely affect our financial condition.

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

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

Foreign exchange transactions under our capital account, including foreign currency-denominated borrowings from foreign banks, issuance of foreign currency-denominated debt securities, if any, and principal payments in respect of foreign currency—denominatedcurrency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange to meet our payment obligations under the debt securities, if any, or to obtain foreign exchange for capital expenditures.

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

We receive substantially all of our revenues, and our financial statements are presented, in Renminbi. The value of the Renminbi against U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in the PRC’s and international political and economic conditions. Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous business day’s inter—bankinter-bank foreign exchange market rates and current exchange rates on the world financial markets. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. In April 2012, the PRC government expanded the daily floating band of Renminbi trading prices against the U.S. dollar in the inter-bank spot foreign currency exchange market from 0.5% to 1.0%, which was further expanded to 2.0% in March 2014. According to the exchange rates published by the People’s Bank of China on December 31, 2016, the exchange rate of Renminbi depreciated by 6.4% against the U.S. dollars from December 31, 2015. Fluctuations in exchange rates may adversely affect the value, translated or converted into U.S. dollars or Hong Kong dollars, of our net assets, earnings and any declared dividends payable on our H shares in foreign currency terms. Our financial condition and results of operations may also be affected by changes in the value of certain currencies other than the Renminbi, in which our obligations are denominated. For further information on our foreign exchange risks and certain exchange rates, see “Item 3. Key Information—A. Selected Financial Data—Exchange Rate Information” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Rate Risk.” We cannot assure you that any future movements in the exchange rate of the Renminbi against the U.S. dollar or other foreign currencies will not adversely affect our results of operations and financial condition.

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

We were incorporated under PRC laws and are governed by our Articles of Association. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the PRC government has promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited number of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties.

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

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

Unlike in the United States, the applicable PRC laws did not specifically allow shareholders to sue the directors, supervisors, senior management or other shareholders on behalf of the corporation to enforce a claim against such party or parties that the corporation has failed to enforce itself until January 1, 2006, when the amendments to the PRC Company Law passed on October 27, 2005 became effective. Although the amended PRC Company Law provides that shareholders, under certain circumstances, may sue the directors, supervisors and senior management on behalf of the company, no detailed implementation rules or judicial interpretations have been issued in this regard. In addition, our minority shareholders may not be able to enjoy protections to the same extent afforded to shareholders of companies incorporated under the state laws of the United States.

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

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You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management.

We are a company incorporated under PRC laws, and substantially all of our assets and our subsidiaries are located in the PRC. In addition, most of our directors and officers reside within the PRC, and substantially all of the assets of our directors and officers are located within the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside the PRC upon most of our directors or officers, including with respect to matters arising under applicable laws and regulations. Moreover, our PRC counsel has advised us that the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom or most other Western countries. Our Hong Kong counsel has also advised us that Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States.

As a result, recognition and enforcement in the PRC of judgments of a court in the United States and any of the other jurisdictions mentioned above in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

Holders of H shares may be subject to PRC taxation.

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

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

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

Several natural disasters and health hazards have struck mainland China in recent years. In 2010,2013, a major earthquake registering 7.1 on the Richter scale struck Qinghai Province. Our network equipment and other assets in the affected areas sustained some damage in the earthquakes, leading to service stoppage and other disruptions in our operations in those areas. In March 2011, a major earthquake registering 9.0 on the Richter scale struck Japan, which affected our international communications services. In 2013, another major earthquake registering 7.0 on the Richter scale struck Sichuan Province, and floods struck 18 provinces including Gansu and Heilongjiang Provinces, causing widespread damages to telecommunications equipment in the affected areas and resulting in disruptions of the telecommunications services. In 2014, three major earthquakes registering 6.1, 6.5 and 6.6, respectively, on the Richter scale struck Yunan Province and another major earthquake registering 6.3 on the Richter scale struck Sichuan Province, causing severe damages to telecommunications equipment as well as disruptions to telecommunications services in the affected areas. In July 2016, southern China suffered severe rainstorms and flooding, which resulted in significant damages to the telecommunications equipment in the affected areas. We are unable to predict the effect, if any, that any future natural disasters and health hazards may have on our business. Any future natural disasters and health hazards may, among other things, significantly disrupt our ability to adequately staff our business, and may generally disrupt our operations. Furthermore, such natural disasters and health hazards may severely restrict the level of economic activity in affected areas, which may in turn materially and adversely affect our business and prospects. As a result, any natural disasters or health hazards in the PRC or other regions in the world may have a material adverse effect on our financial condition and results of operations.

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

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

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

Inspections of other firms that the PCAOB has conducted outside the PRC have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct full inspections of auditors in the PRC makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside the PRC that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

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

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the mainland Chinese affiliates of the “Big Four” accounting firms (including the mainland Chinese affiliate of our independent registered public accounting firm). A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the Chinese accounting firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the Chinese accounting firms reached a settlement with the SEC whereby the proceedings were stayed. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The Chinese accounting firms will receive requests matching those under Section 106 of the Sarbanes-Oxley Act of 2002, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the Chinese accounting firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the recently-stayed proceeding against all four firms. The SEC also reserves the right to resume those proceedings in circumstances where, notwithstanding the accounting firms’ compliance with the procedures in the settlement agreement, the SEC does not receive a production of documents which it considers satisfactory (for example because of action or inaction by the Chinese authorities).

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these accounting firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

If the Chinese affiliate of our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

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Our Restructuring and Initial Public Offering in 2002

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

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

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

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Industry Restructuring and Our Acquisition of the CDMA Business in 2008

Industry Restructuring in 2008

In 2008, pursuant to a joint announcement relating to the further reform of the telecommunications industry in the PRC issued by the MIIT, the NDRC and the MOF, the following restructuring transactions took place in the telecommunications industry: (a) the acquisition by China Telecom Group of the assets of the CDMA network and the acquisition by us of the subscriber base of the CDMA network then owned by China Unicom; (b) the acquisition by China Telecom Group of the basic telecommunications service business operated by China Satellite Communications Corporation, or China Satellite; (c) the merger between China Unicom and China Netcom; and (d) the acquisition of China Railcom by China Mobile.

Our Acquisition of the CDMA Business

On July 27, 2008, we, China Unicom and China Unicom Corporation Limited entered into an acquisition agreement, or the CDMA Acquisition Agreement, pursuant to which we agreed to acquire from China Unicom Corporation Limited the CDMA Business and related assets and liabilities (including the entire equity interest in China Unicom (Macau) Company Limited and 99.5% of the equity interest in Unicom Huasheng Telecommunications Technology Co. Ltd., or Unicom Huasheng) for a total consideration of RMB43,800 million. The cost of the acquisition had been fully paid by us by February, 2010.

Related Transactions

Lease of capacity on the CDMA Network by our Company from China Telecom Group

On July 27, 2008, China Telecom Group, Unicom Group, and Unicom New Horizon Mobile Telecommunications Company Limited, or Unicom New Horizon, a wholly-owned subsidiary of Unicom Group, entered into a CDMA network disposal agreement, pursuant to which Unicom Group and Unicom New Horizon sold the CDMA cellular telecommunications network constructed by Unicom New Horizon, or the CDMA Network, to China Telecom Group for a consideration of RMB66,200 million, or the CDMA Network Acquisition. On October 1, 2008, China Telecom Group completed the acquisition of the CDMA Network. On July 27, 2008, we entered into a CDMA network capacity lease agreement with China Telecom Group to lease the capacity on the CDMA Network from China Telecom Group. As we acquired from China Telecom Group certain assets and associated liabilities relating to the CDMA network in 2012, we did not renew the CDMA network capacity lease agreement with China Telecom Group after it expired on December 31, 2012.

Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities

On August 22, 2012, we and China Telecom Group entered into an acquisition agreement, or CDMA Network Acquisition Agreement, pursuant to which we agreed to purchase from China Telecom Group certain assets and associated liabilities relating to the CDMA network located in 30 provinces, municipalities and autonomous regions in the PRC for an initial consideration of RMB84,595.41 million, subject to an adjustment based on the change in the value of such assets and associated liabilities from March 31, 2012 to the completion date, or the Mobile Network Acquisition. The Mobile Network Acquisition was completed on December 31, 2012, or the Completion Date, and the final consideration of the Mobile Network Acquisition was agreed to be RMB87,210.35 million, or the Final Consideration.

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Pursuant to the CDMA Network Acquisition Agreement, (i) RMB25,500 million of the Final Consideration was paid in January 2013 and (ii) the balance of the Final Consideration, or the Deferred Payment, will be payable at any time on or before the fifth anniversary of the Completion Date. Payment of the Final Consideration was and will be funded from our internal resources and relevant debt financing sources. The Company may, from time to time, prepay all or part of the Deferred Payment at any time after the Completion Date without any penalty until the fifth anniversary of the Completion Date. The Company will pay interest on the outstanding amount of the Deferred Payment to China Telecom Group at half-yearly intervals and the interest will accrue from the day following the Completion Date. The interest rate will be set at a five basis points premium to the yield of the five-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors before the Completion Date and will be adjusted once a year in accordance with the last yield of the five-year super AAA rated Medium Term Notes published by the National Association of Financial Market Institutional Investors at the end of each year. The interest rates for the first year, the second year, the third year, the fourth year and the fourthfifth year after the Completion Date are 4.83%, 6.25%, 5.11%, 4.00% and 4.00%4.11%, respectively. In the event any amount payable by the Company under the CDMA Network Acquisition Agreement is not paid when due, the Company will be subject to liquidated damages on such amount at a daily rate of 0.03% of the arrears from the date following the applicable due date to the date when such amount has been paid in full.

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Changes in Our Corporate Organization in 2013

On April 26, 2013, the Company entered into a disposal agreement with China Telecom Group, pursuant to which the Company agreed to sell to China Telecom Group an 80% equity interest in E-surfing Media, a subsidiary of the Company primarily engaging in providing platform operating services for mobile Internet video and Internet video and offering video services for subscribers through cooperation with content providers, for an initial consideration of RMB1,195 million. The initial consideration was subject to an adjustment based on 80% of the change in the book value of the net assets of E-surfing Media during the period from December 31, 2012 to the completion date of the disposal. The risks and rewards of the ownership of the equity interest in E-surfing Media were transferred to China Telecom Group on June 30, 2013. The final consideration was arrived at RMB1,248 million and received by the Company by December 31, 2013.

On June 9, 2013, we set up a wholly-owned subsidiary, iMUSIC Culture & Technology Co., Ltd., or iMUSIC, which engages in the provision of music production and related information services. The registered capital of iMUSIC is RMB250 million.

On August 19, 2013, we set up a subsidiary, Zhejiang Yixin Technology Co., Ltd., or Zhejiang Yixin, with Netease, Inc., a leading Internet technology company in China, to launch “YiChat”, a mobile Internet multimedia instant messaging application for smartphones. As of December 31, 2015,2016, Zhejiang Yixin had a registered capital of RMB11 million, of which 65% wasis owned by us and the remaining 35% wasis owned by Netease, Inc.

On December 16, 2013, China Telecom Global Limited, or China Telecom Global, a wholly-owned subsidiary of the Company primarily engaged in the provision of international value-added network services, entered into an acquisition agreement with China Telecom Group, pursuant to which China Telecom Global agreed to purchase from China Telecom Group 100% of the equity interest in China Telecom (Europe) Limited, or China Telecom Europe, for an initial consideration of RMB261 million. The consideration was subject to an adjustment based on the change in the net asset value of China Telecom Europe from June 30, 2013 to the completion date. The initial consideration was paid within 15 business days upon the completion of the acquisition. The acquisition was completed on December 31, 2013, and the final consideration was RMB278 million, which was paid by June 30, 2014.

Changes in Our Corporate Organization in 2014

On June 17, 2014, we set up a wholly-owned subsidiary, Chengdu E-store Technology Co., Ltd., which engages in software technology development. The registered capital of Chengdu E-store Technology Co., Ltd.isLtd. is RMB45 million.

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

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

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

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The Company realized a gain (subject to deduction of relevant expenses and taxes) from the tower assets disposal described above, which was calculated based on the surplus of the final consideration for the tower assets disposal over the book value of such assets as atof the completion date. The total gain from the tower assets disposal was RMB7,231 million. As the Company holds 27.9% of the share capital of Tower Company following the completion of such tower assets disposal, 72.1% of the aforesaid gain has been recognized at the completion date of such tower assets disposal in the Company’s consolidated statement of comprehensive income for 2015 and the remaining 27.9% of the aforesaid gain is deferred over the remaining useful life of the tower assets. TheUpon completion of the disposal of tower assets by the Company andto the Tower Company, have reached preliminary understanding,the Company and are currently inTower Company entered into the process of negotiatingLease Agreement on July 8, 2016 that sets forth the pricing and related arrangements in respectrelation to the lease of the Company’s use of certain telecommunications towers and related assets owned by(including both acquired towers and new towers). A copy of the Tower Company.English translation of Lease Agreement is filed as Exhibit 4.71 to this annual report.

The Tower Company is primarily engaged in the construction, maintenance and operation of telecommunications towers as well as ancillary facilities. The Tower Company will have a significant effect on the growth of our mobile business and our results of operations. However, the operations, of the Tower Company are subject to significant uncertainties, please see “Item 3. Key Information – D. Risk Factors - Risk Relating to Our Business – The growthdevelopment of our mobile business is subject to significant uncertainties involved in the future operations ofdependent on the Tower Company.”Company”. We expect that inhave leveraged the long term we would benefit from the operations of the Tower Company in the following aspects: (i) we would leverage the rich towers resources of the Tower Company to promptly and effectively expand our 4G network coverage and density, remedy the weakness of having relatively less base stations at 800 MHz bandwidth and improve our network competitive strength; (ii)in the long term, we would benefit from the operations of the Tower Company in the following aspects: (i) we would enhance our long-term profitability by leveraging on the existing tower assets as well as the co-use synergiescooperation made possible by the Tower Company; and (iii)(ii) as one of the major shareholders of the Tower Company, we would benefit from its future earnings and value enhancement.

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Organizational Structure

Set out below is a chart illustrating our corporate structure and significant subsidiaries as of April 22, 2016:24, 2017:

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In addition, our Company has a branch in each of 22 provinces, five autonomous regions and four centrally administered municipalities in the PRC. See “—Our Acquisition from China Telecom Group and Corporate Organization Restructuring” included elsewhere under this Item.

General Information

Our principal executive offices are located at 31 Jinrong Street, Xicheng District, Beijing, PRC 100033 and our telephone number is (+86-10) 6642-8166.5850-1508. Our website address is www.chinatelecom-h.com. The information on our website is not a part of this annual report. We have appointed CT Corporation System at 13^th floor, 111 Eighth Avenue, New York, New York 10011 as our agent for service of process in the United States.

We are an integrated information service provider in the PRC with full-service capabilities. Following our acquisition of the CDMA Business in 2008, we began to offer a comprehensive range of telecommunications services, including wireline voice services, mobile voice services, Internet access services, value-added services, integrated information and application services, telecommunications network resource services and lease of network equipment and other related services. See “—A. History and Development of the Company—Industry Restructuring and Our Acquisition of the CDMA Business in 2008.”

Since 2005, we have started to implement our business strategy of transformation from a traditional basic telecommunications service provider to a modern integrated information services provider. Specifically, we have enhanced our efforts in developing our non-voice services, such as Internet access services, value-added services, and integrated information and application services, while we continue to strengthen our traditional services such as the wireline voice services, in achieving a more structurally optimized business and enhanced competitive strength. We aim to provide differentiated and innovative services to create value for customers by leveraging on our integrated resources.

In January 2009, the MIIT issued to China Telecom Group, our controlling shareholder, a license to operate 3G business nationwide based on CDMA2000 technology. We have been authorized by China Telecom Group to operate CDMA2000 3G mobile business in the PRC. We launched our CDMA2000 3G mobile services in March 2009 and have extended our CDMA2000 3G mobile services nationwide in the PRC.

In December 2013, the MIIT issued to China Telecom Group, our controlling shareholder, a license to operate 4G business nationwide based on TD-LTE technology. We have been authorized by China Telecom Group to operate TD-LTE 4G mobile business in the PRC. We launched our TD-LTE 4G mobile services in February, 2014 and have extended our TD-LTE 4G mobile services to around 100 cities in the PRC.

In 2014, China Telecom Group was approved by the MIIT, and authorized us, to commence and expand the LTE FDD and TD-LTE hybrid network trial in a number of key cities in the PRC. In February, 2015, China Telecom Group was granted by the MIIT the permit, and authorized us, to provide 4G services based on LTE FDD technologies nationwide.

Our Operation Strategy

In 2015,2016, we continued to leverage on our economies of scale and focus on our data business to further increase both of our revenues and profits. In particular, we have implemented the following six operational strategies:

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In addition, in June 2016, we established a comprehensive transformation and upgrades strategy (Transformation 3.0) and strived to be a leading integrated intelligent information services operator. We plan to focus on the main theme of making our network and operation more intelligent and data-driven and will promote the development of the ecosystems around our businesses. We promptly determined and established the implementation path to pragmatically promote network intelligentization, service ecologicalization and operation intellectualization. We have commenced the implementation of Transformation 3.0 strategy with the following initiatives:

Subscribers and Service Usage

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

Our Products and Services

Wireline Voice Services

The totalOur voice services include mobile voice services and wireline voice services.

Our mobile voice services include local calls, domestic long distance calls, international long distance calls, intra-provincial roaming, inter-provincial roaming and international roaming. In 2016, as part of our effort to develop our 4G services, we further expanded our mobile subscriber base through marketing efforts in open channel sales of 4G mobile handsets by promoting “6-mode multi-mode” as the national standard. In addition, we accelerated subscribers migration to 4G services and expanded our subscriber base.

Amid the intense market competition in 2016, the number of wireline telephone subscribers decreased to 134.3of our mobile services grew by 8.6% from 197.9 million as of December 31, 2015 from 143.6to 215.0 million as of December 31, 2014.2016. The mobile voice usage increased to 720.6 billion minutes in 2016 from 667.5 billion minutes in 2015.

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Our wireline voice services include local wireline services, domestic long distance wireline services and international, Hong Kong, Macau and Taiwan long distance wireline services. The total number of wireline telephone subscribers decreased to 126.9 million as of December 31, 2016 from 134.3 million as of December 31, 2015. The total local wireline usage decreased by approximately 15.0%15.8% from 130.4 billion pulses in 2014 to 110.9 billion pulses in 2015.2015 to 93.4 billion pulses in 2016. Total domestic long distance wireline usage was 26,00520,183 million minutes in 2015,2016, representing a decrease of approximately 11.7%22.4% from 29,44226,005 million minutes in 2014.2015. Total usage of international, Hong Kong, Macau and Taiwan long distance wireline services in 20152016 was 498387 million minutes, representing a decrease of approximately 20.3%22.3% from 625498 million minutes in 2014.2015.

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

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Mobile Voice Services

Our mobile voice services include local calls, domestic long distance calls, international long distance calls, intra-provincial roaming, inter-provincial roaming and international roaming. Amid the intense market competition in 2015, the number of subscribers of our mobile services grew by 6.6% from 185.6 million as of December 31, 2014 to 197.9 million as of December 31, 2015. The mobile voice usage increased to 667.5 billion minutes in 2015 from 655.9 billion minutes in 2014.

In 2015, we focused on developing our 4G services. We seek to further expand our mobile subscriber base through marketing efforts in open channel sales of 4G mobile handsets.

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

Internet Access Services

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

In 2015,2016, we focused on promotion on 50/100Mbpsof Hundred-Mbps broadband products with trial runs of Gbps products and continued to accelerate the optic fiber upgrade of our network and to increase the broadband connection speed. In 2015,2016, we completedprimarily achieved full coverage of our optic fiber upgradenetwork in 170,000 copper-network communities, and as a result, the total optic fiber upgraded communities accounted for 85% of all copper-network communities as of December 31, 2015.southern urban areas. The number of our wireline broadband subscribers reached 123.1 million as of December 31, 2016, up by 8.9% from 113.1 million as of December 31, 2015, up by 5.7% from 107.0 million as of December 31, 2014.2015. Among these subscribers, fiber-to-the-homeFiber-to-the-Home subscribers, or FTTH subscribers, reached 70.99106.0 million, accounting for approximately 62.8%86.1% of the total wireline broadband subscribers as of December 31, 2015,2016, representing an increase of 66.6%49.3% over the number of FTTH subscribers as of December 31, 2014.2015. In addition, by utilizing our competitive wireline broadband access capacity, we continued to develop and incorporate new applications and services in order to build customer loyalty and increase the overall value of our services.

Moreover, we further enhanced the coverage and access capabilities of our wireless broadband network by focusing on developing our 4G services. In 2015,2016, we primarily achieved full coverage of our 4G network nationwide. We built 330,000approximately 380,000 new 4G base stations, including 10,000 new LTE-A base stations in 45 key cities in the PRC, reaching a total of 510,000approximately 890,000 4G base stations as of December 31, 2015. The number of subscribers of2016, and deployed 4G+ (LTE-A) in all cities. We diversified our 3Gproducts, optimized our 4G packages, and 4G services increased from 118.6 million as of December 31, 2014 to 143.1 million as of December 31, 2015, representing 72.3% of our mobile subscribers.promoted the data traffic products including “spare time package”, “holiday package” and “dedicated data traffic package”. As of December 31, 2015,2016, the number of our 4G terminal users reached 58.5121.9 million, accounting for 29.5%56.7% of our mobile subscribers. In 2015,2016, our total 3G/4G handset Internet data traffic reached 555 KTB,1,277.0 kTB, representing an increase of 108.1%130.2% over 2014,2015, of which the aggregate 4G handset Internet data traffic increased nearly 3 times, and the monthly average mobile data traffic per 4G terminal useruse reached 7511,029 MB, which was nearly twice of that per 3G/4G handset subscriber, significantly contributing to the volume and revenue of our data services.

Value-AddedInformation and Application Services

Our value-added services comprise primarily wirelineinformation and mobile value-added services.

Our wireline value-addedapplication services include our wireline voice related services, suchfour core applications namely Internet protocol TV(e-surfing HD), or IPTV (e-surfing HD), VPN, family cloud and video call as caller ID services, Color Ring Tone services and short messaging services, or SMS. Color Ring Tone refers to a service where subscribers can customize the answer ring tone heard by the caller from a wide selection of songs, melodies, sound effects or voice recordings to replace the monotonous ring connecting tone. Our wireline value-added services also include wireline Internet related services, suchwell as Internet data center, or IDC, services, IP-virtual private dial-up network, or IP-VPDN, services, andwhich are based on wireline Internet protocol TV (e-Surfing HD),related services. In addition, we have caller ID services, short messaging services, or IPTV (e-Surfing HD), services.

Our mobile value-added services primarily consist of (i) function-based services, such as mobile Color Ring Tone services,SMS, multimedia messaging services, or MMS and email services, (ii) content-basedcontent based services and applications, such as content services relating to music, as well as (iii)and industry-specific applications for government and enterprises, such as government administration and supervision, transport and logistics, digital hospital and integrated e-Surfing radio-frequency identification, or RFID. Our broad portfolio of mobile Internet products and applications has gained wide market acceptance and contributed to the development of our mobile value-addedRFID services, which are based on wireline voice related services. The usage volumes of music and video content services through our mobile network increased significantly. Our industry-specific applications continue to gain market acceptance.

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We strengthened our research and development capability in relation to the emerging businesses with demonstrable results. In developing Smart Family products, we leveraged our resources advantage to implement centralized and efficient operations on a full-scale to form and operate the Smart Family alliance, and developed four core applications, namely e-Surfing HD, VPN, family cloud and video call, achieving stable expansion in the subscriber base. By the end of 2016, the number of e-surfing HD subscribers reached 61.33 million, representing a net increase of 20.95 million over last year. With respect to the development of internet finance, we promoted certain new businesses including consumer finance installments. The number of subscribers to our wireline caller ID services was 87.7average monthly active users of “BestPay” reached 16.21 million asin 2016, representing an increase of December 31, 2015, a decrease from 93.7 million as of December 31, 2014. The usage volume of our mobile SMS decreased by 12.1% from 64.6 billion messages in 2014 to 56.8 billion messages in 2015. The361.8% over last year, while the number of subscribersactive merchants reached 300,000 in 2016, growing by 773.5% over last year. With respect to the development of Internet of Things (“IoT”), we centralized our mobile Color Ring Tonebusiness operations into one-stop service, launched the construction of NarrowBand-IoT (“NB-IoT”) and formed e-Surfing IoT industry alliance focusing on the expansion in key industries such as Internet of vehicles, achieving a net increase of 13.21 million connected devices. With respect to the development of cloud services, decreased to 76.3 millionwe improved the infrastructure deployment of cloud and IDC as of December 31, 2015 from 96.6 millionwell as of December 31, 2014. launching “e-Surfing cloud 3.0” products.

We experienced rapid growth in our IPTV (e-Surfing HD) and IDC businesses in 2015. The number of our IPTV (e-Surfing HD) subscribers had2016. Revenue from IDC service was RMB 15,936 million, representing an increase of more than 927.9 % over last year, while revenue from cloud service was RMB1,500 million, in 2015, reaching approximately 40representing an increase of 48.8% over last year. Revenue from Big Data services was RMB410 million, asrepresenting an increase of December 31, 2015.81.4% over last year. We published the “Internet+” Action White Paper and prominently enhanced the scale and quality of big orders. We enhanced our efficiently-centralized cloud resource operating capacity by constructing the largest “8+2+“2+31+X” (including eight core regional nodes, two data centers in Inner Mongolia and Guizhou, 31 provincial-level IDCs and flexible urban edge nodes according to customers’ demand) cloud resource layout in China. As of December 31, 2015,2016, approximately 155,000204,000 cabinets were put into service. The Inner Mongolia data center wasand the Guizhou data center were put into operation in 20142013 and the construction of the Guizhou data center began in August 2015.2015, respectively. In terms of the designed capacities, the Inner Mongolia data center and the Guizhou data center can accommodate 150,000 frames and 2,400,000 servers in the aggregate. In addition, we have begunpromoted the construction of Data Center Interconnect, or DCI, and have achieved interconnection of 15two cloud bases and key IDCs.IDCs in 10 provinces.

Integrated Information Application Services

Our integrated information application services consist of “Best Tone” services, IT services and IT application services as well as Internet information services. “Best Tone” service provides our customers with phone number storage, enquiry and call transfer services, as well as various information needed in daily life. IT services and IT application services include information technology-based integrated solutions such as system integration, outsourcing, special advisory, information application, knowledge services and software development. Internet information services refer to products and applications, such as music, video, software and recharge of online game cards, provided through broadband access and operated on a nationwide basis.

In 2015, our integrated information application services continued to expand primarily due to the rapid growthThe usage volume of our IT services and IT application services. By leveraging our strengthmobile SMS decreased by 3.6% from 56.8 billion messages in the government and enterprise markets, we focused on key areas2015 to provide differentiated and innovative products and services, expand the scale of our industry informatization products, especially54.7 billion messages in the government, education and healthcare sectors, and promote the transformation from ICT to information Internet-ware technology, or IIT. To further enhance these services, we seek to develop services incorporating new technologies such as cloud computing and Internet of Things.2016.

Telecommunications Network Resource Services and Lease of Network Equipment

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

In 2015,2016, we continued to focus on government, financial and large enterprise customers. Our marketing efforts focused on providing global one-stop shop, tailored services and comprehensive solutions to these customers. These customers can enjoy a full range of consulting and technical support and services by contacting any of our designated account managers.

Other Services

Our other services primarily include sales and repairs and maintenance of equipment as well as the resale of mobile services.

Our Customers and Brand Management

In 2015,2016, we continued to promote our full-service brand names under our enterprise brand “China Telecom,” and further enhanced “e-Surfing” as our leading brand name through, among others, promoting our “e-Surfing 4G+” mobile business, all-network smartphones“multi-mode” handsets as well as content application services. Through providing contents to our services on a multi-dimensional level and our coordinated marketing efforts, we continue to enhance the brand recognition and market influence for “e-Surfing.”

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Tariffs

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

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Wireline Voice Services

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

Currently, all domestic long distance wireline services using public switched telephone network, or PSTN, are charged at the unified rate with a discount rate during off-peak hours.

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

Mobile Voice Services

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

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

Internet Access Services Value-added Service and Integrated Information and Application Services

We determine tariffs for these services according to market conditions. In addition, pursuant to the policy requirements of the PRC government regarding network speed upgrade and tariff reduction, we will significantly reduce the tariff of Internet dedicated line access for small and medium enterprises in 2017.

Telecommunications Network Resource Services and Lease of Network Equipment

Telecommunications Network Resource Services. We determine the tariffs for our telecommunications network resource services according to market conditions. We generally charge a fee for installation of our telecommunications network resource services and a fixed monthly fee. We offer various promotion discounts for our customers who wish to upgrade to higher bandwidth services. These promotion discounts have stimulated demand for our telecommunications network resource services in recent years.

Lease of Network Equipment. We determine the tariffs for our lease of network equipment according to market conditions. We generally charge monthly fees for leased network equipment on a discount basis and leased network equipment tariffs have generally decreased in recent years. We provide different discounts to our customers on a case by case basis.

Interconnection and Roaming Arrangements

Interconnection

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

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

International Roaming

WeAs for voice and data services, we provide international roaming services across different mobile network standards, including CDMA, CDMA to Global System for Mobile Communications, or GSM, CDMA to Wideband Code Division Multiple Access, or WCDMA, and LTE to WCDMA, as well as 4G international roaming services on LTE to LTE networks, to our subscribers, which allow them to access mobile telecommunications services and use voice, SMS and data services while they are physically outside of their registered service area but in the coverage areas of other mobile telecommunications networks in other countries and regions with which we or our GSM/WCDMA roaming sponsor have roaming arrangements.

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As of December 31, 2015,2016, subscribers of our mobile services can roam on mobile networks in more than 200 countries and regions based on international roaming agreements between China Telecom Group and the local CDMA operators or GSM/WCDMA/LTE roaming providers.A mobile service subscriber using roaming services is charged at our roaming usage rates for both incoming and outgoing calls, plus applicable long distance tariffs. With respect to international roaming, we settle roaming revenues and expenses with international operators in accordance with roaming agreements between China Telecom Group and the international operators. China Telecom Group has also agreed to arrange for us to participate in its future international roaming arrangements.

Marketing, Sales, Distribution and Customer Services

Marketing, Sales and Distribution

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

In order to achieve the scale development of our business, we tailored products and marketing strategies to target different customer groups. For the government and enterprise market, we fully leveraged the integrated edges of networks, cloud computing and security capability, vigorously developed new types of information and communication technology, or ICT, and industrial Internet services, cloud and big dataBig Data business, provided differentiated and innovative services for healthcare, education, government, industrial Internet and other key industries to expand the user base. For the family market, we focused on development of optic fiber broadband, increased the end-to-end speed and enriched the contents for e-Surfing HD and Smart Family applications to provide overall information technology solutions. For the individual market, we focused on differentiated applications, attracting new customers through “4G + Application” to accelerate the acquisition of 4G terminal users. In addition, we seek to further expand our business in the rural areas through establishing distribution channels and setting up all-network stores in towns to achieve “one town, one store” coverage. For the overseas market, we accelerated our resources layout in the key countries and areas involved in the “One Belt One Road” initiative rolled out by the PRC government, in order to provide integrated solutions for overseas carriers, overseas Chinese companies and multinational corporations.

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We implement our marketing strategy through an integrated sales and distribution channel network, which covers: (i) dedicated service channel comprising customer managers specifically assigned to market our services to industrial clients, commercial clients and campus clients; (ii) electronic-based service channel such as customer service hotlines, online service centers, mobile applications and third-party e-commerce platforms; (iii) business outlets channel, including self-owned and third-party business outlets; and (iv)outlets (including mobile handset chain stores, electronics chain stores, supermarkets and large-scale telecommunications equipment distribution stores.stores). As part of our strategy to provide integrated services, we continue to enhance resources sharing with respect to information relating to sales and distribution across our sales and distribution networks. In 2015,2016, we comprehensively promoted Internet-baseddeepened the promotion of channel operation, by strengthening traffic flow in onlineeffectively expanded the channel scale, refining and optimizing the “channel overview” and “superior channel” systems while remarkably enhancing precision sales and service capabilities of the channels. We strengthened coordination between direct sales channels, physical channels and enhancing userelectronic channels for market development. Regarding physical stores, we expanded the open channels coverage in core business districts, built Smart Family experience stores in offline channels. We carried out “Collaborationurban communities and promoted the establishment of sales outlets for “multi-mode” handsets in rural market. At the same time, we initiated cooperation with Strong Partners”various industries and “e-Surfing Recommended” promotions in our business outlets channel, which resulted in significant increase inwidely expanded into the household electrical appliance stores, comprehensively promoting sales of terminals and mobile phone cards in open channels.service integration. In government and enterprisedirect sales channels, we implementedleveraged the “Sales Elite” program, which resultededges in rapid expansionbig orders development and good customer relations, achieved remarkable enhancement in the volume of our subscriber scale.big orders. In electronic channels, we reinforced our efforts for data traffic sales, which resultedleveraged online stores and mobile online stores service system, resulting in a rapid increasethe consistent enhancement in the sales volume of data traffic packages.

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InSince 2015, we implemented “the Excellent 100” program to encourage handset manufacturers to produce popular 4G handsets that are compatible with our network, which in turn enriched our 4G handset portfolio. We made every effortIn addition, we and China Unicom jointly published the “White Paper of “6-mode Multi-mode” Handsets” in July 2016 to promote “All-Network Six-Mode Handsets”“6-mode” handsets and provide more convenience to becomecustomers. In 2016, “multi-mode” handsets became the national standard. We also promoted signature handsets such as security handsets, video handsets and Taobao handsets to cater to the differentiated needs of our customers. The portfolio of handsets offered was further enlarged and the cost performance was further enhanced. In 2015,2016, we offered approximately 3001,000 4G terminal devices models, including approximately 70 all-network six-mode374 “multi-mode” 4G terminal models and 11120 4G+ terminal models to our customers.customers. The sales of “multi-mode” 4G terminal models accounted for more than 80% of the total 4G terminal models sold to our customers in 2016.

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

Customer Service

We provide customer services through all channels on our integrated sales and distribution channel network and continuenetwork. In addition to enrich our customer servicesown service channels, bywe are partnering with third-party Internet-based channels, including launching customer service platforms on “Yichat” and “Wechat”, two mobile messaging applications, as well as “Weibo”, a Chinese microblogging website. Our customer services typically include service inquiries, service applications, customers’ complaints, product and service promotions, service initiation and termination, payment reminder services and emergency services. Through establishing and implementing our customer full-service standard, we have significantly improved our basic customer services, such as service processing time, request responding time and providing service related and other information to customers through text messages. To strengthen customer relations, we are committed to promoting premium-level services and scaled up bonus points rewards to customers. In 2016, we were ranked first in the industry in terms of customer satisfaction in both wireline and mobile Internet access services by the MIIT.

Information Technology System

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

Network System

Our network has extensive coverage and scale and employs a variety of advanced technologies and suitable architecture. It offers comprehensive functions and a reliable operation. In addition, it supports a comprehensive range of end-to-end telecommunications services and enables customized products to be delivered for a variety of telecommunications needs. Our network system is managed and operated by our experienced network management and maintenance teams and is supported by our strong research and development capabilities. And in light of future advances in technology, we have formulated viable plans to migrate our network system efficiently to the next generation.

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On December 31, 2012, we completed the acquisition from China Telecom Group of certain assets and associated liabilities relating to the CDMA network located in 30 provinces, municipalities and autonomous regions in the PRC. In addition, we lease certain CDMA network facilities in Xizang Autonomous Region from China Telecom Group and have the exclusive right to use and operate such CDMA network to provide our CDMA mobile services. See “Item 4. Information on the Company—A. History and Development of the Company—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for details.

Network Architecture

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

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Low frequency refarming

We obtained permits from MIIT to refarm the 800MHz frequency resources and make use of the unoccupied frequency resources for 4G network construction. We will make full use of the advantage in the coverage reach of the low frequency of 800MHz, rapidly finishing the construction of 4G network in rural areas at a low cost, primarily achieving nationwide full coverage of 4G, as well as deepening the coverage and supplementing the volume of 4G data in urban areas. In 2017, we plan to establish a 4G network with broad coverage and high quality nationwide, which would also help support our deployment of Voice over LTE (“VoLTE”) and NB-IoT in the future.

Equipment procurement

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

Purchases from our five largest suppliers of telecommunications equipment accounted for approximately 24.1%24.5% of our total amount of annual purchases in 2015.2016. Purchases from our single largest supplier of telecommunications equipment accounted for approximately 8.3%8.6% of our total amount of annual purchases in 2015.2016.

Competition

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

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

We also face increasing competition from other competitors outside the telecommunications industry. Television cable companies providing fixed-line broadband services, Internet services providers and mobile software and application developers (such as Over-the-Top messaging services providers), among others, are competing with us in voice or data services.

In recent years, the PRC Government has taken various initiatives to encourage competition in the telecommunications industry, such as the three-network convergence policy and the policy encouraging non-State owned companies to enter the industry. Inindustry, in addition to a series of guidance to such effect. Specifically, in May 2010, the PRC State Council issued Certain Opinion on Encouraging and Guiding the Sound Development of Private Investment, encouraging private investment in industry sectors that are mainly state-controlled, such as basic telecommunications services. In June 2012, the MIIT issued Opinions on Encouraging and Guiding Private Investment in the Telecommunications Industry, encouraging private-sector investment in the telecommunications industry. On May 17, 2013, the MIIT issued the Trial Plan of Resale of Mobile Telecommunications Services, pursuant to which the MIIT would grant qualified companies mobile telecommunications resale business approvals on a pilot basis which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators andor resell such services to customers. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunications Resale Business, pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar businesses of the mobile networks operators.

In an effort to further encourage private-sector investment in the broadband network construction and business operation, as well as encourage private capital to enter into the telecommunications market through equity investment, the State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013 and Certain Opinion on Promoting Information Consumption and Stimulating Domestic Demand on August 8, 2013, and the MIIT also issued the Informatization Development Plan on September 29, 2013, the Notice on Opening the Broadband Access Market to Private Capital on December 25, 2014 and the Noticetwo more Notices on Further Broadening the Scope of Trial Opening of the Broadband Access Business on September 23, 2015.2015 and October 13, 2016, respectively, opening up the broadband access market to private capital in all the cities in Liaoning, Fujian, Henan, Hubei, Guangdong, Shaanxi provinces and Ningxia autonomous region on a province-wide basis and over 40 cities in other provinces. As a result, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition. As of December 31, 2015,2016, the MIIT had granted broadband access pilot enterprises licenses to over 50200 private companies. As of December 31, 2015,2016, we had entered into resale contracts with 2524 out of the 42 mobile virtual network operators which had obtained the licenses from the MIIT, and 1122 of these companies had started to offer 4G services.

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Trademarks

We conduct our business under the “China Telecom” brand name and logo. Currently, China Telecom Group owns certain trademarks in the PRC, some of which have been registered with the Trademark Office of the PRC State Administration for Industry and Commerce, or the Trademark Office, and some of which are in the process of being registered with the Trademark Office. China Telecom Group has executed a trademark license agreement with us. Under this agreement, China Telecom Group agreed to grant to us and our subsidiaries the right to use these trademarks upon the completion of the registration on a royalty-free basis until December 31, 2018, which is automatically renewable for three more years at our option.as the parties may agree. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group—Group and its affiliated companies—Trademark License Agreements.Agreement.”

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Regulatory and Related Matters

Overview

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

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

In addition, the Counterterrorism Law of the People’s Republic of China has come into force on January 1, 2016. It requires telecommunications operators and Internet service providers to provide technical support and assistance such as technical interface and decryption to the public security authorities and national security authorities for their lawful prevention and investigation of terrorist activities; it requires telecommunications operators and Internet service providers to put into practice the network security, information content supervision system and technical measures for security protection in accordance with the laws and administrative regulations, in order to prevent the dissemination of information relating to terrorism and extremism; it requires telecommunications operators and Internet service providers to, where any information in relation to terrorism or extremism is detected, immediately cease the relevant transmission, keep the relevant records, delete the relevant information and report to the public security divisions or the relevant departments; it also requires telecommunications operators and Internet service providers to examine the identity of the users and not to provide services to any person of unknown identity or to persons who refuse to have their identity examined. Violation of the above provisions may result in fines and the relevant responsible persons may also be fined or detained.

On September 23, 2016, six departments including the Supreme People’s Court, the Supreme People’s Procuratorate, Ministry of Public Security, the MIIT, the People’s Bank of China and China Banking Regulatory Commission jointly released the Announcement on Preventing and Cracking Down on Telecom and Internet Frauds. The Announcement requires telecom operators to strictly implement the real-name registration system of telephone subscribers. Services to those entities or individuals who have not registered in real names and could not complete the true identity information registration within the stipulated time will be terminated. It also requires telecommunications operators to immediately carry out measures to clean up user accounts that have registered multiple phone cards, and to block Internet publication, search, dissemination and sales channels of software that changes the number displayed by caller IDs. It also strictly prohibits the operation and any business that provides illegal services of changing phone numbers via Internet; strictly regulates the transmission of caller IDs of the Administration of International Communication Accesses; fully implements the regulation and cleaning up of private voice lines and caller authentication; strengthens the detection and interception of fake caller IDs within and between networks; and immediately bans and regulates telephone services such as “one-number service”, through which the user can combine his/her various communication numbers into one new phone number, business switchboard and 400 telephone switchboard, which is the virtual telephone switchboard with an unified number nationwide designed for enterprises and institutions and the incoming calls with the tariff shared between the enterprises/institutions and callers who will only bear the local telephone usage fees.

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On November 7, 2016, the Standing Committee of the National People’s Congress announced that the Cybersecurity Law of the People’s Republic of China shall come into force on June 1, 2017. It specifies the principle of cyberspace sovereignty, the safety obligations of network products and services providers as well as the safety obligations of network operators; and it further enhances the protection of personal data, establishes the framework for the protection of critical information infrastructure facilities, and establishes rules regulating cross-border transmission of key data via critical information infrastructure facilities. Telecom operators shall comply with the requirements under the Cybersecurity Law of the People’s Republic of China in respect of network operating security and network information security.

Furthermore, on November 7, 2016, the MIIT issued the Implementation Opinions on the Work of Further Prevention and Crack Down on Communication Information Fraud, which requires telecommunications operators to fully implement the real-name registration for telephone subscribers, rectify and standardize the key telecommunications services, rectify the issue of “changing number via internet” services and strengthen the protection of telephone subscribers’ personal data.

Telecommunications Regulations

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

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

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Licensing

The Telecommunications Regulations adopt the existing regulatory distinction between basic and value-added telecommunications services, which are subject to different licensing requirements. On December 28, 2015, the MIIT promulgated the Telecommunications Service Catalogue (2015 edition) which took effect on March 1, 2016. Basic telecommunications services include, among others, wireline local and domestic long distance telephonecommunications services, international telecommunications services,cellular mobile communications services, (such as 900/1800MHz GSM, 800MHz CDMA, 3G and 4G mobile communications services), satellite communications services, paging services, data communications services, (such as Internet data transmissionIP telephone services, international datatrunking communications services), trunkingservices, wireless paging services, network access facilities services, domestic communications facilities services and domestic and international telecommunications facilitynetwork hosting services. Value-added telecommunications services include, among others, value-addedinternet data center services, provided over wireline telephone networks (e.g., telephone information,content distribution network services, domestic Internet virtual private network services, Internet access services, online data processing and transaction processing services, domestic multi-communication services, storage and forwarding services, call center voice mailservices, information services and video conferencing services), value-added services provided over mobile networks, value-added services provided over Internet networks (e.g., Internet data centercoding and Internet access and content services) and value-added services provided over other data networks (e.g., computer information, e-mail and electronic data interchange services).procedures conversion services.

Providers of any basic telecommunications services as well as providers of value-added services in two or more provinces, autonomous regions and centrally administered municipalities in the PRC must apply for licenses from the MIIT. In accordance with the approval of the MIIT, we derive our exclusive rights to operate our business from our status as a subsidiary controlled by China Telecom Group, which holds the licenses required for operating our telecommunications business. In January 2009, China Telecom Group received a license from the MIIT to operate 3G services nationwide, which permits China Telecom Group to provide 3G services based on CDMA2000 technology. We have been authorized by China Telecom Group to operate 3G services nationwide based on CDMA2000 technology. In December 2013, China Telecom Group, Unicom Group and China Mobile Group received licenses from the MIIT to operate 4G services nationwide based on TD-LTE technology. We have been authorized by China Telecom Group to operate 4G services nationwide based on TD-LTE technology. In 2014, China Telecom Group was approved by the MIIT, and authorized us, to expand the LTE FDD and TD-LTE hybrid network trial in a number of cities in the PRC. On February 27, 2015, China Telecom Group was granted by the MIIT the permit, and authorized us, to provide 4G services based on LTE FDD technologies nationwide.

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

The MIIT has promulgated the Administrative Measures for the Licensing of Telecommunications Business Operations, which became effective on April 10, 2009. Those regulations apply to the application for, and examination and approval of, telecommunications business licenses in the PRC.

Pursuant to the Circular on the Framework Plan for the China (Shanghai) Pilot Free Trade Zone issued by the State Council on September 18, 2013, qualified foreign investment enterprises will be permitted to provide specific value-added telecommunications services in the China (Shanghai) Pilot Free Trade Zone, subject to protections on Internet information security and approval by the State Council in case of a breakthrough in the limitations provided for under the administrative regulations.

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Tariff Setting

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

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

On May 20, 2015, the office of the State Council promulgated the Guidance Opinions Regarding Expediting the Development of the High-Speed Broadband Network and Promoting the Speed Upgrade and Tariff Reduction, calling for the telecommunications operators to reduce the data tariffs. In addition, the Report on Work of Government in 2017 calls for the deepening of speed upgrade and tariff reduction, the cancellation of domestic long distance and roaming fee, the reduction of the tariff of Internet dedicated line access for small and medium enterprises and international long distance calls.

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Interconnection

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

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

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

The MIIT issued the Notice on Public Telecommunications Network Interconnection Settlement and Relay Fees Allocation in October 2003 and two Notices on Adjustment to Settlement Standards for Interconnection Fees of Wireline Local Telephone Networks in October 2006 and April 2009, respectively, which provided for interconnection settlement arrangement standards for local inter-district calls between wireline local telephone operators as well as public telecommunications network. In November 2009, the MIIT issued the Notice on Adjustment to Settlement Standards for Interconnection Fees of Public Telecommunications Network and the Notice on the Settlement Standards for Interconnection Fees of TD-SCDMA, which provided for adjustments to certain interconnections settlement standards between telecommunications operators. Effective from January 1, 2014, some of the settlement standards have been further adjusted pursuant to the Notice on Adjustment to Settlement Standards for Interconnection Fees of Public Telecommunications Network issued by the MIIT on December 17, 2013. Prior to January 1, 2014, when a mobile user of a basic telecommunications operator (excluding China Mobile’s TD-SCDMA 157 and 188 prefix numbers users) initiates a call to a mobile user of another basic telecommunications operator, the settlement charge is set uniformly at a rate of RMB0.06 per minute payable by the basic telecommunications operator originating the call to the basic telecommunications operator receiving the call. In the event a China Mobile’s TD-SCDMA 157 and 188 prefix numbers user initiates a call to a user of our Company or China Unicom within the scope of local network, China Mobile will pay a settlement charge of RMB0.012 per minute to our Company or China Unicom. With effect from January 1, 2014, when a mobile users of our Company or China Unicom initiates a call to a mobile user of China Mobile (not including TD-SCDMA 157 and 188 prefix numbers users), the interconnection settlement charges payable by our Company or China Unicom to China Mobile will beis adjusted from thethen prevailing rate of RMB0.06 per minute to RMB0.04 per minute. Other existing voice interconnection settlement standards remain unchanged. The MIIT will assess the above interconnection settlement policy once every two years based on the development conditions of the telecommunications market and will make adjustments when appropriate. Meanwhile, the SMS interconnection settlement standard is adjusted from RMB0.03 per message to RMB0.01 per message, and the MMS interconnection settlement standard is adjusted from RMB0.10 per message to RMB0.05 per message.

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The following table sets forth selected interconnection revenues sharing and settlement arrangements for local calls and domestic long distance calls:

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

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

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

The primary interconnection settlement arrangement for the Internet backbone networks in China is the interconnection settlement through the network access points, or the NAPs, which is determined by the MIIT. The MIIT announced in 2013 that it would reduce the interconnection settlement charges for the Internet backbone networks by 30% per year in the next five years starting from 2013. The interconnection settlement charges for the NAPs was further reduced by the MIIT starting from November 1, 2015,2016, and is currently set as RMB280,000RMB180,000 per gigabyte.gigabyte per month.

Technical Standards

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

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Telecommunications Resources

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

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In 2015,2016, we paid approximately RMB167RMB177 million of usage fees for the telecommunications network numbers and approximately RMB382RMB390 million of frequency usage fees, respectively.

Quality of Service

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

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

The MII promulgated the Measures on the Supervision and Administration of Quality of Service of the Public Telecommunications Networks, or the Measures on Quality of Service, effective August 1, 2005. The Measures on Quality of Service provide the supervision and administration of services of public telecommunications networks, including, among others, wireline local telephone networks, domestic long distance telephone networks, international telephone networks, and IP telephone networks. Under the Measures on Quality of Service, telecommunications operators are required to set up a unit which is responsible for solving the problems with respect to the public telecommunications network services.

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

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

In addition, the MIIT, together with other governmental authorities, has taken measures to prompt telecommunications operators to screen indecent contents carried through their networks.

Universal Services

Under the Telecommunications Regulations, telecommunications service providers in the PRC are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government, and the MIIT has been given authority by the PRC government to delineate the scope of its universal service obligations. The MIIT, may also select universal service providers through a tendering process. The MIIT, together with other regulatory authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services. The PRC government currently uses financial resources to compensate the expenses incurred in the “Village to Village” and the “Broadband China” projects before the establishment of a universal service fund. The State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013, which included the provision of broadband services to remote villages as part of the universal service obligations of telecommunications service providers and mentioned improving the compensation scheme for the expenses incurred in the “Broadband China” projects undertaken by telecommunications service providers in the villages. UnderIn addition, the compensation scheme, telecommunications operators may receive compensation from the PRC government for the “Broadband China” projects. However, the compensation from the PRC government may not be sufficient to cover all of our expenses for providing the telecommunications services under the relevant projects.

Under the Telecommunications Regulations, all PRC telecommunications operators shall provide universal services, our Company, together with other telecommunications operators, has undertaken the “Village to Village” project since 2004. Currently, the PRC government implements the “Broadband China” projects which require telecommunications operators to provide broadband services in a number of remote villages in the PRC as part of their universal service obligations.The MOF and the MIIT jointly issued the Notice of Implementation of Telecommunications Universal Services on a Trial BasisPilot Work in December 2015, which provided that the telecommunications universal services should take a market-oriented approach and that the telecommunications universal services providers should be selected through a public bidding process. This notice sets up certain goals for the telecommunication operators, including broadband coverage in 98% of the administrative villages and over 12Mbps broadband access capacity in rural villages, by 2020. Pursuant to the notice, the central government subsidies will be granted to the pilot areas determined by the MOF and the MIIT and the universal services providers will be selected through an open bidding process.

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The PRC government currently uses financial resources to compensate the expenses incurred in the “Village to Village” and the “Broadband China” projects before the establishment of a universal service fund. We, together with other telecommunications operators, have undertaken the “Village to Village” project since 2004. Under the “Broadband”“Broadband China” projects, China Telecom Group and our Company had invested in the construction of broadband network facilities in certain remote villages of 21 provinces and autonomous regions by the end of 2015. We2016. The compensation from the PRC government may not be sufficient to cover all of our expenses for providing the telecommunications services under “Village to Village” and the “Broadband China” projects. However, we believe the expenses for such operation and maintenance will not have a material effect on our financial condition.

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State-Owned Assets Supervision

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

In September 2016, as part of the PRC government’s efforts to reform state-owned enterprises and increase their competitiveness, Unicom Group joined the first group of state-owned enterprises for a pilot program on state-owned enterprise reform, and it is currently contemplating, developing and progressing significant matters relating to the reform. However, the related plan is still under further deliberation.

Three-Network Convergence Policy

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

“Broadband China” Policy

In August 2013, the State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan, which treats broadband as a strategic national infrastructure, strengthens the overall top-level design and planning, coordinates the research and development of the key technologies, formulation of the standard, the safety of the information technology and the construction of the emergency communication system, strengthens the synergy effect of website construction, application, innovative service and industry support, comprehensively utilizes the cable technology and the wireless technology to accelerate the convergence of telecommunications, television broadcast and Internet access networks, and accelerates the construction of the next generation national information infrastructures. In September 2013, the MIIT promulgated an Information-Based Development Plan to further elaborate the “Broadband China” Policy and to encourage private capital to enter into the telecommunications market through equity investment.

Mobile Telecommunications Resale Business

On May 17, 2013, the MIIT issued the Trial Plan of Resale of Mobile Telecommunications Services, pursuant to which the MIIT would grant qualified companies mobile telecommunications resale business approvals on a pilot basis which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators or resell such services to customers. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunications Resale Business ( ), pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar businesses of the mobile networks operators. For a series of government measures to encourage non-State owned companies to provide telecommunications services that could compete with our services, see “Item 4. Information on the Company – B. Business Overview – Competition.”

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VAT Reform Applicable to the Telecommunications Industry

On November 16, 2011, the Ministry of Finance, or the MOF, and the SAT, introduced a pilot tax program under which the PRC business tax would be replaced with a VAT. On April 29, 2014, the MOF and the SAT announced that the pilot program would be extended to cover the telecommunications industry. Effective from June 1, 2014, the pilot tax rate for basic telecommunications services is 11% and the pilot tax rate for value-added telecommunications services is 6%. On March 18, 2016, the State Council standing committee meeting resolved to expand the VAT pilot program to all other industries which were previously subject to the PRC business tax starting from May 1, 2016. On March 23, 2016, the SAT issued the Notice on Expanding the Pilot Program of Replacing the Business Tax with VAT, promulgating the relevant implementing rules. The application of the VAT to the telecommunications industry has had, and is expected to continue to have, a material adverse effect on our revenues and operating profits in the short term, but such adverse effect is expected to gradually decrease in the long term. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business — Implementation of a value-added tax to replace the business tax in the PRC may decrease our revenues and profitability.” and “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 – Qualitative and Quantitative Analysis of the VAT Reform Impact.”

However, we expect that in the long term replacing the business tax with the VAT will be beneficial to the development of our business. We will strive to reduce the adverse effect of the application of VAT to the telecommunications industry on our revenues and profits by taking key measures and considerations such as:

(i) we would optimize development and sales models, implement stringent cost control measure, and enhance control on purchasing and vendors’ tax profiles;

(ii) as the VAT pilot program expands to other industries nationwide, it is expected that we would be able to deduct more operating costs and investments as input VAT credits in future;

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(iii) following our strategic transformation, the proportion of revenues generated from value-added telecommunications services is expected to increase, resulting in a lower average tax rate of output VAT; and

(iv) input VAT credit on capital expenditures would reduce the carrying amounts of fixed assets, resulting in a reduction of depreciation expenses, which can enhance our future profits.

Amended Employment Contract Law

The amended PRC Employment Contract Law, effective as of July 1, 2013, and the Interim Provisions on Labor Dispatch, effective as of March 1, 2014, focus on strengthening the administration of the employment practice involving dispatched employees, and provide that, among others, the dispatched employees shall have the right to receive the same compensation as that received by other employees hired by the employer for the same type of positions, shall account for no more than 10% of the total employees hired by an employer and shall only be employed for temporary, supporting or substitutive positions. The amended PRC Employment Contract Law and the Interim Provisions on Labor Dispatch have not had, and we do not believe they will have, a material adverse effect on our personnel expenses or number of employees.

Mobile Number Portability Trial

In April 2009, Hainan Province kicked off the mobile number portability trial with a team of experts from the MIIT holding a training session in the city of Haikou to introduce the relevant policies and requirements for the mobile number portability trial, which would allow mobile users to migrate from the network of one telecommunications operator to another without having to change their mobile numbers. In November 2010, Tianjin and Hainan each began mobile number portability trial for the local China Mobile subscribers. Pursuant to the relevant policy then issued by the MIIT, mobile users of China Mobile, China Unicom and our Company in Tianjin may migrate among the networks of the three operators, while mobile users in Hainan may only migrate from China Mobile to our Company or China Unicom and not from China Unicom or our Company to China Mobile. In May 2014, the MIIT promulgated the Administration Measures on Mobile Number Portability Trial, effective as of May 17, 2014, which regulated the implementation measures for mobile number portability trials. OnPursuant to the same date, Hainan began providingrelevant policies issued by the localMIIT, currently mobile users withof China Mobile, China Unicom and our Company in Hainan, Jiangxi, Hubei, Yunnan and Tianjin may migrate among the networks of the three operators without changing their mobile numbers. With the evolution of the operators’ networks into VoLTE, the MIIT and the operators will jointly study the next steps in technology solutions to mobile number portability amongwith respect to such evolution in network technologies.

Disclosure of Iranian Activities under Section 13(r) of the local networksSecurities Exchange Act of our Company, China Unicom1934

Section 219 of the Iran Threat Reduction and China Mobile. On September 20, 2014, Jiangxi, Hubei and Yunnan began offering mobile number portability servicesSyria Human Rights Act of 2012 added Section 13(r) to the local mobile users. In September 2015,Exchange Act of 1934, as amended. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the MIIT commenced a thorough evaluationproliferation of weapons of mass destruction. Disclosure is required even where the mobile number portability trialactivities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in order to determinecompliance with applicable law, and whether or not to expand the trial across the nation. activities are sanctionable under U.S. law.

As of the date of this annual report, such evaluationwe are not aware of any activity, transaction or dealing by us or any of our affiliates in 2016 that requires disclosure in this under Section 13(r) of the Exchange Act of 1934, as amended, except as set forth below.

China Telecom Global Limited, a wholly owned subsidiary of the Company, entered into a rate agreement for international voice services with Telecommunication Infrastructure Company of Iran (“TIC”), which is still on-going.a government-controlled entity, in October 2016, which confirmed the preliminary charge rates for international voice services between the parties. The purpose for the agreement is to obtain the charge rates for the parties, which will serve the basis for future cooperation. The rate agreement is not binding on the parties to proceed with signing of the definitive agreement or implementation of the business arrangement, but only serves as the price references for future negotiation. The official business relationship between the parties should be based on a framework agreement or a definitive service agreement. The agreement was subsequently terminated in February 2017. Prior to the termination of the agreement, we did not commence any negotiation with TIC on any framework agreement or any definitive service agreement, and no business was conducted between the two parties. No revenue was generated, and no cost or expenditure was incurred in relation to the agreement. The Company does not currently have any plans to enter into any business arrangements with ITC or other telecommunications operators in Iran.

See “—A. History and Development of the Company—Our Restructuring and Initial Public Offering in 2002” included elsewhere under this Item.

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Properties

Executive Offices

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

Properties

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

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None.

You should read the following discussion and analysis in conjunction with our audited consolidated financial statements and our selected financial data, in each case included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board.

Our audited consolidated financial statements included elsewhere in this annual report reflect the acquisitions and divestment in 2013, the establishment of new subsidiaries in 2014 and the tower assets disposal in 2015 described under “Item 4. Information on the Company—A. History and Development of the Company—Industry Restructuring and Our Acquisition of the CDMA Business in 2008”, “—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities”, “—Changes in Our Corporate Organization in 2013”, “—Changes in Our Corporate Organization in 2014” and “Establishment of the Tower Company and the Disposal and UseLease of the Telecommunications Towers”.

In addition, since we and China Telecom Europe were under common control of China Telecom Group after the completion of our acquisition of China Telecom Europe from China Telecom Group on December 31, 2013, the acquisition of China Telecom Europe has been accounted for as a combination of entities under common control in a manner similar to a pooling-of-interests. Accordingly, the assets and liabilities of China Telecom Europe have been accounted for at historical amounts and the consolidated financial statements for periods prior to the acquisition have been restated to include the financial position and results of operations of China Telecom Europe on a combined basis. Unless otherwise indicated in this section, our financial data for periods prior to the acquisition are presented based on those restated amounts. See Note 1 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

On October 14, 2015, the Company entered into the Transfer Agreement with the Tower Company and certain other parties thereto, pursuant to which the Company agreed to sell certain telecommunications towers and related assets in an aggregate amount of RMB30,131 million and inject cash in the amount of RMB2,966 million to the Tower Company in exchange for 33,097 million new shares, with a par value of RMB1.00 per share, issued by the Tower Company. Following the completion of such this transaction, the Company holds 27.9% of the share capital of the Tower Company. The Company realized a gain (subject to deduction of relevant expenses and taxes) from such tower assets disposal, which was calculated based on the surplus of the final consideration for the tower assets disposal over the book value of such assets as at the completion date. The total gain from the tower assets disposal was RMB7,231 million. As the Company holds 27.9% of the share capital of Tower Company following the completion of such tower assets disposal, 72.1% of the aforesaid gain has been recognized at the completion date in the Company’s consolidated statement of comprehensive income for 2015 and the remaining 27.9% of the aforesaid gain is deferred over the remaining useful life of the tower assets. As a result, a gain from the tower assets disposal in the amount of RMB5,214 million was recognized in the consolidated statement of comprehensive income for the year ended December 31, 2015. TheUpon completion of the disposal of tower assets by the Company andto the Tower Company, have reached preliminary understanding,the Company and are currently inTower Company entered into the process of negotiatingLease Agreement on July 8, 2016 that sets forth the pricing and related arrangements in respectrelation to the lease of the Company’s use of certain telecommunications towers and related assets owned by the Tower Company. The Company estimated the telecommunications(including both acquired towers usage fees payable to the Tower Company in 2015 taking into account factors including the depreciation cost, maintenance cost, markup margin and sharing discount.new towers). See “Item 4. Information on the Company—A. History and Development of the Company—Establishment of the Tower Company and the Disposal and UseLease of the Telecommunications Towers”, and Notes 2 and 33(b)Note 32(b) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

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Overview

We are an integrated information service provider in the PRC. We offer a comprehensive range of telecommunications services, including wireline voice services, mobile voice services, Internet access services, value-added services, integrated information and application services, telecommunications network resource services and lease of network equipment and other related services. We continue to leverage our full-service capabilities to further enhance our integrated and differentiated development of operation of wireline, mobile and Internet access services, and to distinguish us from our competitors.

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Financial Overview

Our operating revenues increased by 2.1%6.4%, from RMB324,394 million in 2014 to RMB331,202 million in 2015.2015 to RMB352,285 million in 2016. The increase was mainly attributable to revenues growth from Internet access services, value-added services, integrated information and application services and telecommunications network resource services and lease of network equipment as well as other related services. Our total operating expenses increased by 3.0%6.7%, from RMB295,886RMB304,760 million in 20142015 to RMB304,760RMB325,084 million in 2015.2016. The increase in operating expenses was primarily due to increases in network operations and support expenses which was partially offset by the decrease in selling, general and administrativeother operating expenses. Our operating income decreasedincreased by 7.2%2.9%, from RMB28,508 million in 2014 to RMB26,442 million in 2015.2015 to RMB27,201 million in 2016. The profit attributable to equity holders of the Company increaseddecreased by 10.2%, from RMB17,680 million in 2014 to RMB20,054 million in 2015.2015 to RMB18,004 million in 2016.

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

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

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

Critical Accounting Policies

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

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our financial statements. Our principal accounting policies are set forth in detail in Note 32 to our consolidated financial statements included elsewhere in this annual report. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

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Revenue recognition

Our revenue recognition methods are as follows:

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

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

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We offer promotional packages, which involve the bundled sales of terminal equipment (mobile handsets) and telecommunications services, to customers. The total contract consideration of a promotional package is allocated to revenues generated from the provision of telecommunications services and the sales of terminal equipment using the residual method. Under the residual method, the total contract consideration of the arrangement is allocated as follows: the undelivered component, which is the provision of telecommunications services, is measured at fair value, and the remainder of the contract consideration is allocated to the delivered component, which are the sales of terminal equipment. We recognize revenues generated from the delivery and sales of the terminal equipment when the title of the terminal equipment is passed to the customers whereas revenues generated from the provision of telecommunications services are recognized based upon the actual usage of such services. During each of the years in the three-year period ended December 31, 2015,2016, a substantial portion of the total contract consideration is allocated to the provision of telecommunications services since the terminal equipment is typically provided free of charge or at a nominal amount to promote our core business of the provision of telecommunications services, and the fair value of the telecommunications services approximates the total contract consideration.

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Accounting for Long-lived Assets

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

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

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

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

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

For the year ended December 31, 2015,2016, provision for impairment losses of RMB51RMB62 million werewas made against the carrying value of long-lived assets. For the yearsyear ended December 31, 2013 and2015, provision for impairment losses of RMB51 million was made against the carrying value of long-lived assets. For the year ended December 31, 2014, no provision for impairment loss was made against the carrying value of long-lived assets.

Impairment Losses for Bad and Doubtful Debts

We estimate impairment losses for bad and doubtful debts resulting from the inability of our customers to make the required payments. We base our estimates on the aging of our accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of our customers were to deteriorate, actual write-offs might be higher than expected.

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Amounts due from the provision of telecommunications services to residential and business customers are generally due within 30 days from the date of billing. Customers who have accounts overdue by more than 90 days will have their services disconnected.

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The following table summarizes the changes in the provision for impairment losses for bad and doubtful debts for each of the years in the three-year period ended December 31, 2015:2016:

Classification of lease arrangement with Tower Company

We entered into a lease arrangement with Tower Company regarding the lease of telecommunications towers and related assets, or Tower Assets on July 8, 2016. We evaluated the detailed clauses of the lease agreements and determined such lease arrangements as operating leases according to the accounting policies on lease arrangements and based on the following judgments: (i) we do not expect any transfer of ownership of Tower Assets from Tower Company by the end of the lease term; (ii) we consider the current lease term of 5 years does not account for the major part of the economic lives of Tower Assets; (iii) the present value of minimum lease payment at the inception of the lease does not substantially account for all of the fair value of the Tower Assets; and (iv) Tower Assets are compatible with all telecommunications operators, and therefore are not of specialized nature that only we can use without major modifications.

Recently Issued International Financial Reporting Standards

Up to the date of issue of our 20152016 financial statements, the International Accounting Standards Board has issued the following amendments and new standards and interpretation which are not yet effective and not early adopted for the annual accounting period ended December 31, 2015:2016:

We are in the process of making an assessment of the impact that will result from adopting the amendments and new standards and interpretation issued by the IASB which are not yet effective for the accounting period ended on December 31, 2015.2016. Except for IFRS 15, “Revenue from Contracts with Customers”, and IFRS 16, “Leases”, so far we believe that the adoption of these amendments and new standards and interpretation is unlikely to have a significant impact on ourits financial position and the results of operations.

IFRS 15, “Revenue from Contracts with Customers”

IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18, “Revenue”, IAS 11, “Construction Contracts” and the related interpretations when it becomes effective.

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The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.

Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

Our directors consider that the performance obligations are similar to the current identification of separate revenue components under IAS 18, however, the allocation of total consideration to the respective performance obligations will be based on relative fair values which will potentially affect the timing and amounts of revenue recognition. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until our directors perform a detailed review.

IFRS 16, “Leases”

IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede IAS 17, “Leases” and the related interpretations when it becomes effective.

IFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognized for all leases by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Under IFRS 16, lease payments in relation to lease liability will be presented as financing cash flows or allocated into a principal and an interest portion which will be presented as financing and operating cash flows, respectively.

In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by IFRS 16.

Our directors are in the process of making an assessment of the impact that will result from adopting IFRS 16. A preliminary assessment indicates that we will recognize a right-of-use asset and a corresponding liability in respect of all the operating leases unless they qualify for low value or short-term leases upon the application of IFRS 16. In addition, the application of new requirements may result changes in measurement, presentation and disclosure as indicated above. However, it is not practicable to provide a reasonable estimate of the financial effect until our directors complete a detailed review.

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Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

Operating Revenues

Our operating revenues increased by RMB21,083 million, or 6.4% from RMB331,202 million in 2015 to RMB352,285 million in 2016. This increase was primarily driven by the revenues growth from Internet services, information and application services, telecommunications network resource services and lease of network equipment and other services, which was partially offset by a decrease in revenues from voice services.

Voice Services.Revenues from our voice services decreased by 10.8% from RMB78,593 million in 2015 to RMB70,120 million in 2016, representing 19.9% of our operating revenues in 2016. Of this, revenues from our wireline voice services decreased by 12.2% from RMB29,610 million in 2015 to RMB25,987 million in 2016. This decrease was primarily due to the increasing penetration of mobile voice services and other alternative means of communications, which continued to divert revenues from wireline voice services, as well as the migration of some of our wireline telephone subscribers to our 3G and 4G services. Revenues from our mobile voice services decreased by 9.9% from RMB48,983 million in 2015 to RMB44,133 million in 2016. This decrease was primarily due to the effect of the mobile Internet services, such as Over-the-Top messaging services, as alternative means of communication.

Internet Services. Revenues from our Internet services increased by 18.9% from RMB126,546 million in 2015 to RMB150,405 million in 2016, representing 42.7% of our operating revenues. This increase was primarily due to the increase in our mobile Internet access revenues, which was attributable to the rapid growth in the volume of and revenue from our mobile handset Internet access. The revenues attributable to mobile Internet access services in 2016 was RMB70,682 million, representing an increase of 39.4% from RMB50,694 million in 2015, of which revenues attributable to mobile handset Internet access was RMB68,263 million, representing an increase of 42.9% from 2015. In addition, the number of our wireline broadband subscribers increased to 123.1 million as of December 31, 2016, representing an increase of 10.0 million, or 8.9%, from 113.1 million as of December 31, 2015. The wireline broadband revenue was RMB76,766 million in 2016, representing an increase of 3.3% from 2015.

Information and Application Services.Revenues from our information and application services increased by 0.7% from RMB66,343 million in 2015 to RMB66,838 million in 2016, representing 19.0% of our operating revenues in 2016. This increase was primarily due to the increase in revenues from our wireline information and application services, which was partially offset by the decrease in revenues from our mobile information and application services. As a result of the rapid growth of our IDC, cloud and IPTV (e-Surfing HD) services, the revenues attributable to wireline information and application services increased by 5.5% from RMB42,034 million in 2015 to RMB44,335 million in 2016. The revenues attributable to mobile information and application services decreased by 7.4% from RMB24,309 million in 2015 to RMB22,503 million in 2016 due to a decrease in revenue from traditional services such as short and multimedia messaging services and information inquiry services.

Telecommunications Network Resource Services and Lease of Network Equipment. Revenues from our telecommunications network resource services and lease of network equipment increased by 0.8% from RMB17,635 million in 2015 to RMB17,773 million in 2016, representing 5.0% of our operating revenues in 2016. Revenue from wireline telecommunications network resource services and lease of network equipment was RMB17,595 million in 2016.

Other Services. Revenues from other services increased by 12.0% from RMB42,085 million in 2015 to RMB47,149 million in 2016. The increase in revenues from other services was primarily due to the increase in the sales of mobile terminals. The revenues from sales of mobile terminals increased by 8.1% to RMB34,612 million in 2016 from RMB32,026 million in 2015, primarily due to the growth in sales of mobile terminals driven by the sales of “multi-mode” handsets.

Operating Expenses

Our operating expenses increased by 6.7% from RMB304,760 million in 2015 to RMB325,084 million in 2016. The increase in operating expenses was primarily due to increases in network operations and support expenses and other operating expenses.

Depreciation and Amortization. Our depreciation and amortization expenses increased by 0.4% from RMB67,664 million in 2015 to RMB67,938 million in 2016. The increase in depreciation and amortization due to newly added assets in 2016 was largely offset by the decrease in depreciation and amortization resulted from the disposal of tower assets.

Network Operations and Support Expenses. Our network operations and support expenses increased by 15.8% from RMB81,240 million in 2015 to RMB94,092 million in 2016, primarily due to the increase in the tower assets lease fee and related expenses.

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Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased by 3.6% from RMB54,472 million in 2015 to RMB56,417 million in 2016. The selling expenses were RMB47,821 million in 2016, representing an increase of 4.1% from 2015. Commission and service expenses for third parties were RMB30,753 million in 2016, representing an increase of 15.4% from 2015, primarily due to a shift in our sales and marketing strategy that focuses more on sales through third-party channels. Advertising and promotional expenses were RMB17,068 million in 2016, representing a decrease of 11.5% from 2015, of which the terminal subsidies was RMB9,370 million in 2016, representing a decrease of 19.4% from 2015, primarily due to shift in our sales and marketing strategy away from subsidizing the cost of mobile terminal equipment offered to customers for free or at a nominal price.

Personnel Expenses. Personnel expenses increased by 3.7% from RMB52,541 million in 2015 to RMB54,460 million in 2016. This increase was primarily attributable to increased remuneration for our frontline staff. The personnel expenses as a percentage of our operating revenues decreased from 15.9% in 2015 to 15.5% in 2016.

Other Operating Expenses. Our other operating expenses primarily consist of interconnection charges, cost of goods sold, donations and other expenses. Our other operating expenses were RMB52,177 million in 2016, which increased by 6.8% from RMB48,843 million in 2015. The increase was primarily due to the increase in the cost of mobile terminal equipment sold, which is commensurate with the increased sales of such goods. The cost of mobile terminal equipment sold was RMB32,849 million in 2016, which increased by 6.4% from RMB30,867 million in 2015.

Net Finance Costs

Our net finance costs decreased by 24.3% from RMB4,273 million in 2015 to RMB3,235 million in 2016, primarily due to the decrease in the interest rate of the deferred consideration of Mobile Network Acquisition from 5.11% per annum in 2015 to 4.00% per annum in 2016 (adjusted in accordance with a 5 basis points premium to the yield of the 5-year super AAA rated Medium Term Notes once a year pursuant to the agreement).

The net exchange gain was RMB113 million in 2016, compared to a net exchange loss of RMB75 million in 2015, which was primarily due to depreciation of the Renminbi exchange rate against the U.S. dollars in 2016. According to the exchange rates published by the People’s Bank of China on December 31, 2016, the exchange rate of Renminbi depreciated by 6.4% against the U.S. dollars from December 31, 2015.

Income Tax

In 2016, our income tax expense was RMB5,988 million with the effective tax rate of 24.8%. Our expected income tax expense at our statutory tax rate of 25.0% in 2016 would be RMB6,024 million. The difference between our effective income tax rate and the statutory income tax rate was primarily due to the preferential income tax rate, which was lower than the statutory income tax rate, enjoyed by some of our branches with operations in the western region of China and some of our subsidiaries. See Note 26 to our consolidated financial statements included elsewhere in this annual report for further details in respect of the reconciliation of our effective income tax rate to the statutory income tax rate.

Profit Attributable to Equity Holders of the Company

As a result of the foregoing, the profit attributable to equity holders of the Company was RMB18,004 million in 2016, with a net margin of 5.1%, compared to a profit attributable to equity holders of the Company of RMB20,054 million with a net margin of 6.1% in 2015.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Operating Revenues

Our operating revenues increased by RMB6,808 million, or 2.1%, from RMB324,394 million in 2014 to RMB331,202 million in 2015. This increase was primarily driven by the revenues growth from Internet access services, value-added services, integrated information and application services, telecommunications network resource services and lease of network equipment and other services, which was partially offset by a decrease in revenues from wirelinevoice services.

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Voice Services.Revenues from our voice services and mobile voice services.

Wireline Voice Services.Revenuesdecreased by 11.0% from RMB88,260 million in 2014 to RMB78,593 million in 2015, representing 23.7% of our operating revenues in 2015. Of this, revenues from our wireline voice services decreased by 11.8%, from RMB33,587 million in 2014 to RMB29,610 million in 2015. This decrease was primarily due to the increasing penetration of mobile voice services and other alternative means of communications, which continued to divert revenues from wireline voice services, as well as the migration of some of our wireline telephone subscribers to our 3G and 4G services. Revenues from our wireline voice services accounted for 8.9% of our operating revenues in 2015, compared to 10.4% in 2014.

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Mobile Voice Services. Revenues from our mobile voice services decreased by 10.4%, from RMB54,673 million in 2014 to RMB48,983 million in 2015, representing 14.8% of our operating revenues in 2015, compared to 16.9% in 2014.2015. This decrease was primarily due to the effect of the mobile Internet services, such as Over-the-Top messaging services, as alternative means of communications.communication.

Internet Access Services. Revenues from our Internet access services increased by 12.6% from RMB112,431 million in 2014 to RMB126,546 million in 2015, representing 38.2% of our operating revenues.revenues in 2015. This increase was primarily due to the increase in our mobile Internet access revenues, which was attributable to the rapid growth in the volume of and revenue from our mobile data traffic. The revenues attributable to mobile Internet access services in 2015 was RMB50,694 million, representing an increase of 34.1% from RMB37,809 million in 2014, of which revenues attributable to handset data traffic was RMB47,770 million, representing an increase of 40.1% from 2014. In addition,the number of our wireline broadband subscribers increased to 113.1 million as of December 31, 2015, representing an increase of 6.11 million, or 5.7%, from 107.0 million as of December 31, 2014. The wireline broadband revenue was RMB74,285 million, an increase of 1.1% from 2014.

Value-Added Services. Revenues from our value-added services increased by 1.6% from RMB38,419 million in 2014 to RMB39,044 million in 2015, representing 11.8% of our operating revenues in 2015. This increase was primarily due to the growth of revenues from our wireline value-added services such as IDCInformation and IPTV (e-Surfing HD) services, which was partially offset by the decrease in revenues from our mobile value-added services. The revenues attributable to wireline value-added services in 2015 were RMB21,529 million, representing an increase of 16.8% from RMB18,428 million in 2014. The revenues attributable to mobile value-added services in 2015 were RMB17,515 million, representing a decrease of 12.4% from 2014.

Integrated Information Application Services.Revenues from our integrated information and application services increased by 1.3%1.5% from RMB26,939RMB65,358 million in 2014 to RMB27,299RMB66,343 million in 2015, representing 8.3%20.1% of our operating revenues in 2015. This increase was primarily due to the increase in revenues from our wireline integrated information and application services, which was partially offset by the decrease in revenues from our mobile integrated information and application services. As a result of the rapid growth of our IDC and IPTV services, IT services and industry applications, the revenues attributable to wireline integrated information and application services, , increased by 4.5%10.5% from RMB19,619RMB38,047 million in 2014 to RMB20,505RMB42,034 million in 2015. The revenues attributable to mobile integrated information and application services decreased by 7.2%11.0% from RMB7,320RMB27,311 million in 2014 to RMB6,794RMB24,309 million in 2015 due to a decrease in traditional information inquiry services.