UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM20-F

OR

For the fiscal year ended December 31, 20182019

OR

OR

Date of event requiring this shell company report                    

For the transition period from                    to                    

Commission file number1-15028

CHINA UNICOM (HONG KONG) LIMITED

(Exact Name of Registrant as Specified in Its Charter)

75^th Floor, The Center

99 Queen’s Road Central

Hong Kong

(Address of Principal Executive Offices)

Yung Shun Loy Jacky

Telephone: +852 2121 3220

Facsimile: +852 2121 3232

75^th Floor, The Center

99 Queen’s Road Central

Hong Kong

(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, 2018,2019, 30,598,124,345 ordinary shares were issued and outstanding.

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

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

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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

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

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

Large accelerated filer  ☒             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.  ☐

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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

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

Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☐    No  ☐

TABLE OF CONTENTS

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Note Regarding 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. Such forward-looking statements may include, without limitation, statements relating to (i) our plans and strategies and our ability to successfully execute these plans and strategies, including those in connection with our mergers and acquisitions and capital expenditures; (ii) our plans for network expansion, including those in connection with thebuild-out of our mobile services and network infrastructure; (iii) our competitive position, including our ability to upgrade and expand existing networks and increase network efficiency, to improve existing services and offer new services, to develop new technological applications and to leverage our position as an integrated telecommunications operator and expand into new services and markets; (iv) our future business condition, including our future financial results, cash flows, financing plans and dividends; (v) the future growth of market demand of, and opportunities for, our new and existing products and services; and (vi) future regulatory and other developments in the PRC telecommunications industry.

The words “anticipate”, “believe”, “could”, “estimate”, “intend”, “may”, “seek”, “will” and similar expressions, as they relate to us, are intended to identify certain of these forward-looking statements. We do not intend to update any of these forward-looking statements and are under no obligation to do so.

The forward-looking statements contained in this annual report are, by their nature, subject to significant risks and uncertainties. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of our future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements as a result of a number of factors, including, without limitation:

ii

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PART I

Not Applicable.

Not Applicable.

The following tables present selected historical financial data of our company as of and for the years ended December 31, 2014, 2015, 2016, 2017, 2018 and 2018.2019. Except for amounts presented in U.S. dollars, the selected historical consolidated statements of income data (other than ADS data) for the years ended December 31, 2016, 2017, 2018 and 20182019 and the consolidated statements of financial position data as of December 31, 20172018 and 20182019 set forth below should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements, including the related notes, included elsewhere in this annual report on Form20-F. The selected historical consolidated statements of income data (other than ADS data) for the years ended December 31, 20142015 and 20152016 and the consolidated statements of financial position data as of December 31, 2014, 2015, 2016 and 20162017 set forth below should be read in conjunction with and are qualified in their entirety by reference to our audited consolidated financial statements that are included in our previous annual reports on Form20-F. Our consolidated financial statements as of and for the years ended December 31, 2014, 2015, 2016, 2017, 2018 and 20182019 have been prepared and presented in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.

In October 2015, we, through our wholly own subsidiaries, China United Network Communications Corporation Limited, or CUCL, and Unicom New Horizon Telecommunications Company Limited, or Unicom New Horizon, completed the disposal of certain of our telecommunications towers and related assets to the Tower Company. See “A. History and Development of the Company — Establishment of the Tower Company and the Disposal of Telecommunications Towers” under Item 4. As we owned 28.1% of the share capital of the Tower Company at the completion of the disposal, we recognized at the completion 71.9% of the gains on such disposal, with the remaining amount of such gain amortized over the remaining useful life of the transferred assets.

As our business continues to evolve, we have been engaged in further integration of our mobile services, fixed-line services and other services, including offering more bundled service packages across mobile and fixed-line services. As such, in 2017, we began presenting the breakdown of service revenue on an integrated basis as revenue from voice usage and monthly fees, broadband and mobile data services, data and Internet application services, other value-added services, interconnection fees, transmission lines usage and associated services and other services. The relevant presentation for our service revenue in 2014, 2015 and 2016 has therefore been reclassified to conform with current year’s presentation.

We publish our consolidated financial statements in Renminbi. Solely for the convenience of the reader, this annual report on Form20-F contains translations of certain Renminbi and Hong Kong dollar amounts into U.S. dollars and vice versa at RMB6.8755RMB6.9618 = US$1.00 and HK$ 7.83057.7894 = US$1.00, the noon buying rates in New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2018.2019. The noon buying rates in New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York are published on a weekly basis in the H.10 statistical release of the Board of Governors of the Federal Reserve System of the United States. These translations should not be construed as representations that the Renminbi or Hong Kong dollar amounts could actually be converted into U.S. dollars at such rates or at all.

Risks Relating to Our Business

We face intense competition from other telecommunications operators, including China Mobile and China Telecom, and other companies that provide telecommunications or related services, which may materially and adversely affect our financial condition, results of operations and growth prospects.

The telecommunications industry in China has been evolving. We, along with China Mobile Communications Corporation,Group Co. Ltd., or China Mobile, and China Telecommunications Corporation,Group Co. Ltd., or China Telecom, are the three full-service telecommunications service providers that operate both fixed-line and mobile telecommunications networks in China. See “A. History and Development of the Company — Restructurings of the Telecommunications Industry” under Item 4. We face intense competition in virtually all aspects of our services, including mobile services, fixed-line voice services, broadband services and data communications services, from China Mobile and China Telecom and expect that this competition will further intensify. In particular, we compete with China Mobile and China Telecom in mobile services. For fixed-line services, we are a leading fixed-line operator in northern China, while China Telecom has a dominant market position in southern China and the MIIT granted to China Mobile the approval for China Mobile to authorize China Mobile Limited to operate the fixed-line telecommunications business in December 2013. In addition, the PRC Government from time to time introduces new policies that may intensify competition among the three telecommunications operators. For example, the PRC government has started mobile number portability pilot programs in certain provinces and cities, and announced in March 2019began to implement the program nationwide in China by the end ofin November 2019. The mobile number portability program allows customers to switch mobile carriers while retaining their numbers, which may intensify the competition among telecommunication operators. In addition, in June 2019, the MIIT granted the permit to operate 5G digital cellular mobile communications service to Unicom Group, the ultimate parent company of our Company, China Mobile, China Telecom, and China Broadcasting Network Corporation Ltd, or China Broadcasting, respectively, which is expected to intensify the competition among us and other 5G communication service providers with respect to the planning and promotion of 5G development and commercialization. See “—We may encounter difficulties and challenges in the commercialization of 5G technologies.”

Since May 2015, in order to expand our customer base as well as to comply with the relevant policies, we have, in addition to continuing increasing our network speed, implemented a series of tariff reduction measures, including but not limited to the launch of a mobile data carry-over program in October 2015, which allow subscribers of our data plans withpre-determined monthly data limit to carry over their unused data to the following month with no extra charge, the substantial reduction of Internet private line access tariff for small and medium enterprises customers and international long-distance call tariff since May 2017, the cancelation of domestic long-distance and roaming fee for mobile handset subscribers since September 2017 and the cancelation of domestic mobile data roaming fees since July 2018. In 2019, we continued to implement the “speed upgrade and tariff reduction” policy and launched more preferential tariff plans. For example, we reduced the unit price of our mobile data service and the broadband tariffs for small and medium enterprises in 2019. See “B. Business Overview — Regulatory and Related Matters — Tariff Setting” under Item 4. Such measures have adversely affected our service revenue in 2019.

In January 2020, the MIIT issued the Notice on Adjusting the Settlement Arrangement Standards for Internet Backbone Network Interconnections, pursuant to which, among others, we and China Telecom would cease to charge China Mobile for the currentone-way payment of interconnection fees for Internet backbone network interconnections between China Mobile and us or China Telecom since July 1, 2020. Instead, Internet backbone network interconnections would be settled by full peering without charges among us, China Telecom and China Mobile. In 2019, we generated revenue of approximately RMB700 million from such fees, accounting for approximately 0.2% of our total revenue.

These adjustments in our charges for telecommunications services and products that have been or will be made by us have resulted in or will have an adverse effect on our operating revenue and profitability. Any future governmental policies in China or market conditions that require us to further reduce our charges for telecommunications services and products could materially and adversely affect our financial condition and results of operations.

Our ARPU of mobile billing subscribers and net income fluctuated in recent years and may decline in the future.

Our average revenue per subscriber per month, or ARPU, of mobile billing subscribers decreased by 3.1% from 2014 to 2015, and decreased by 4.8% from 2017 to 2018.2018 and further decreased by 11.6% from 2018 to 2019. Our ARPU of fixed-line broadband access subscribers decreased by 3.7% from 2017 to 2018 and further decreased by 6.7% from 2018 to 2019. We also experienced fluctuations in net income in recent years.years, although our net income increased by 10.9% from RMB10.3 billion in 2018 to RMB11.4 billion in 2019. We cannot guarantee that we will be able to maintain or increase our ARPU of mobile billing subscribers or net income in the future, and failure to do so could have a material adverse effect on our financial condition and results of operations.

The successful development of our mobile services is subject to market demand, consumer acceptance, technological challenges, competition on service fees, terminal subsidies and other marketing expenses, and other uncertainties, and expected benefits from investments in our mobile networks.

Our principal telecommunicationsMobile services are mobileone of our principal services, of which 4G and 5G services are atwo critical part.parts. We commercially launched our 4G services in March 2014. We will continue to make investments, as appropriate, in our 4G networks in the future, to expand our network coverage and improve our network quality. In June 2019, the MIIT granted the permit to operate 5G digital cellular mobile communications service to Unicom Group, the ultimate parent company of our Company. We commercially launched our 5G services in October 2019. In connection with 5G services, we have been cooperating with China Telecom on jointly building and sharing the 5G networks, expanding our 5G network coverage and capacity, improving our 5G network service capabilities, as well as facilitating the 5G commercialization. See “B. Business Overview—Research and Development” under Item 4. We have made and expect to continue to make substantial investments in the construction of infrastructure of our 5G network. However, there exist significant uncertainties in the amount of time and financial and operational resources needed to develop commercially viable technologies, the capital expenditures needed to construct necessary infrastructure, our suppliers’ ability to manufacture equipment and devices supporting the infrastructure of 5G system, competitive landscape, future expansion and application of 5G technologies in vertical industries, as well as market reception and demand of our 5G services. In addition, we will rely on China Telecom’s network to provide our 5G services in the regions for which they are responsible. If the 5G network co-building and co-sharing construction progress falls behind the mutually agreed plan or our subscribers are unsatisfied with the network quality in such regions and turn to our competitors, our business and results of operations might be adversely impacted.

We may experience various difficulties in the development of our 4G, services5G and other mobile services, including software, network, handset and other technical issues. We cannot assure you that we will be able to do so in a timely fashion or that we will not encounter other difficulties. Moreover, with respect to our mobile business, in particular our 4G and 5G services, we cannot assure you that:

The industry trends of mobile service substitution and mobile service migration from older generations to new generations may continue to have a material adverse effect on our older generations mobile services and fixed-line voice services, which may adversely affect our financial condition, results of operations and growth prospects.

As the technology of mobile services evolves, the trend of mobile service migration from older generations to new generations would generally have an adverse effect on our older generations’ services, including a growth slowdown or a decrease in the number of subscribers and usage. In particular, our 2G services and 3G services, have been adversely affected by the trend of migration to 4G services and 5G services, which resulted in a decrease in our subscribers and revenue from ournon-4G andnon-5Gmobile services in 2018.2019. Although such trend of migration would increase our 4G and 5G service subscribers and revenue, we cannot guarantee that such increase can always fully offset the negative impact. Likewise, we, consistent with the industry trend, have experienced a decline in our fixed-line voice services for years, which is expected to continue due to the trend of mobile service substitution for fixed-line services.

Furthermore, ourOur mobile voice services have also been adversely affected by the trend of mobile service migration from voice services tonon-voice services. In particular, primarily due to the increasing popularity ofOver-the-Top services and products, such as instant messaging application, voice-over-Internet-protocol, or VoIP services, and video-chat software, we have experienced the trend of our mobile subscribers substituting voice services fornon-voice services, such as mobile data services, which, among other factors, resulted in a decline in our revenue from voice services. Although increasing popularity ofOver-the-Top services and products, among other factors, has contributed to the increase in the usage of mobile data and, thus, has a positive effect on our revenue fromnon-voice services, it may not be able to fully offset the negative impact on our voice services.

We have been taking various measures to attract our older generations mobile service subscribers to migrate to our 4G and 5G networks and those of our voice services to migrate to ournon-voice services. Such measures include, among others, improvement of our products and services, acceleration of the construction and enhancement of coverage of our 4G and 5G networks, offering bundled services that integrate fixed-line and mobile services as well as strengthening our data traffic operation capability to encourage data usage. If these efforts are not successful, our financial condition, results of operations and growth prospects could be adversely affected.

Competition from foreign-invested operators may further increase the competition for employees, exacerbate price competition and increase our operating expenses, thereby adversely affecting our financial condition, results of operations and growth prospects.

As a result of China’s accession to the World Trade Organization, or WTO, in December 2001 and the adoption of the Regulations on the Administration of Foreign-Invested Telecommunications Enterprises in January 2002, which implement China’s commitments to the WTO, the PRC Government has agreed to gradually liberalize the various segments and regions of the telecommunications market in China to foreign investors. Currently, foreign investors are permitted to own up to 49% of joint ventures that offer basic telecommunications services without any geographic restrictions in China and up to 50% of joint ventures that offer value-added telecommunications services without any geographic restrictions in China. More foreign-invested operators may enter China’s telecommunications market as a result of this liberalization. They may have greater financial, managerial and technical resources and more expertise in network management and sales and marketing than we do.

Increased competition from foreign-invested operators into the PRC telecommunications market may further increase the competition for skilled and experienced employees, exacerbate price competition and increase our customer acquisition costs and other operating expenses, and thereby adversely affect our financial condition, results of operations and growth prospects.

If we are not able to timely and effectively overcome the uncertainties and difficulties we may encounter in expanding and upgrading our networks and infrastructure, our competitive position, financial condition, results of operations and growth prospects may be materially and adversely affected.

Our business may be materially and adversely affected by theCOVID-19 pandemic.

In 2020,COVID-19, a disease caused by a novel strain of coronavirus,SARS-COV-2 has spread globally throughout Asia, Europe, North America and other regions. The World Health Organization announced in March 2020 thatCOVID-19 has developed into a pandemic. In response to theCOVID-19 pandemic, China adopted various temporary control measures, including imposition of mandatory quarantine requirements, placement of travel restrictions, extension of the Lunar New Year Holiday, closure of public spaces, cancellation of public events and delay in the resumption of business operations. The affected countries and regions outside China have also adopted various quarantine and control measures. It is unclear how long theCOVID-19 pandemic and the responsive quarantine and control measures would last.

We believe the COVID-19 pandemic will pose short term challenges to us. It may also accelerate the market demand for digital, Internet-based and intelligent telecommunication services. TheCOVID-19 pandemic could materially and adversely affect our business, financial condition and results of operations. In particular, theCOVID-19 pandemic has resulted in a decrease in the customer traffic to our sales outlets, which may negatively affect our acquisition of new customers and development of new business. It has also caused a temporary delay in our network constructions in the first quarter of 2020, which we will have to catch up in order not to delay in our construction schedule on a full year basis. Furthermore, other adverse impacts caused by theCOVID-19 pandemic may include the reduced demand for our products and services due to the decrease in customers’ ability or willingness to spend, and the increase in our credit risk imposed by our customers, especially the small and medium enterprise customers, as a result of deteriorating financial condition.

In addition, if the global public health crisis caused byCOVID-19 pandemic continues, it would have further adverse impact on global economy, China’s economy and financial market in general, which will have a material adverse effect on our business, financial condition and results of operations. Furthermore, as there is significant uncertainty relating to future developments of theCOVID-19 pandemic, we are not able at this time to estimate the full impact on our financial or operational results.

We are subject to risks associated with our telecommunications equipmentcompany, our suppliers and other business partners which could be adversely affected by restrictions, sanctions or other legal or regulatory actions under relevant laws and regulations in various jurisdictions which in turn could materially and adversely affect the supply chain and our business operations.operations directly and indirectly.

WeWhile we primarily conduct our business in Mainland China, we also operate in other countries and regions. Furthermore, we procure our telecommunications network equipment, and related maintenance and technical support and other equipment and services from certain PRC and overseas telecommunications equipment suppliers. See “Item 4. Information on the Company—B. Business Overview—Networks.” Wesuppliers and also transact with other business withpartners. See “B. Business Overview—Networks” under Item 4. We, our suppliers and other business partners who may operate globally. As these parties operate globally andthat have operations in various jurisdictions are therefore subject to the laws and regulations in variousthose jurisdictions anysuch as the United States and the European Union and could be subject to restrictions, sanctions or other legal or regulatory actions in those jurisdictions, which could cause disruptions or other material difficulties in theirour business activities to the extent any government of the relevant jurisdictions imposes any restrictions on their import and export activities, or sanctions or other legal or regulatory actions against the suppliers and other business partners in connection with their business activities. The relevant jurisdictions include, among others,For example, on April 4, 2020, the President of the United States, in which we through our subsidiary offer certain telecommunication services, issued an executive order for the European Union andestablishment of a committee to review foreign participation in the telecommunications services sector in the United Nations.States. Furthermore, as the supply of our telecommunications equipment relies on a global supply chain which is vulnerable to significant disruptions in the supply of parts and other items that are necessary for the relevant manufacturing activities. For instance, certain telecommunications equipment manufacturers were added by the U.S. government to an entity list in May 2019, which resulted in the imposition of additional licensing requirements on the export,re-export and transfer of goods, services and technology to such manufacturers. While the U.S. government issued a temporary general license partially restoring the said licensing requirements in limited types of transactions and extended the expiration dates of the temporary license for multiple times, there is no guarantee that the U.S. government will further extend the expiration date of the temporary license or fully withdraw the licensing requirements. Such disruptions could prevent those affected suppliersmanufacturers from delivering equipment and services to us in accordance with the agreed terms of supply, which in turnsupply. This could negatively affect our business operations. For example, weWe may not be able to find suitable alternative suppliers for the affected equipment in a timely manner. Even if we are able to find alternative suppliers, the commercial terms may not be comparable, and we could therefore be subject to a higher procuring cost. Furthermore, if any of our suppliers raises their prices due to an increase in international trade tariffs, we could be subject to a higher cost in procuring the relevant products. We may experience a significant delay in implementing the part of our business plans that relies on delivery of the affected network equipment and difficulties in timely improving our services that rely on those suppliers for upgrading our networks and related software and applications. Any of these and other consequences could materially and adversely affect our business, results of operations, financial condition and prospect and cause a significant volatility in and a decline in our share price.

Because we rely on arrangements with other telecommunications operators, changes to the terms or availability of these arrangements may result in disruptions to our services and operations and may result in customer dissatisfaction and materially and adversely affect our financial condition, results of operations and growth prospects.

Our ability to provide telecommunications services depends upon arrangements with other telecommunications operators. In particular, interconnection is necessary to complete all calls between our subscribers and subscribers of other telecommunications operators. We, either through ourselves or through Unicom Group, have established interconnection and transmission line leasing arrangements with other telecommunications operators, including our parent company, as required to conduct our current business. Any disruption to our interconnection with the networks of those operators or other international telecommunications operators with which we interconnect may affect our operations, service quality and customer satisfaction, thus adversely affecting our business. Furthermore, we are generally not entitled to collect indirect or consequential damages resulting from disruptions in the networks with which we are interconnected. Any disruption in existing interconnection arrangements and transmission line arrangements or any significant change of their terms, as a result of natural events or accidents or for regulatory, technical, competitive or other reasons, may lead to temporary service interruptions and increased costs that can seriously jeopardize our operations and adversely affect our financial condition, results of operations and growth prospects. Difficulties in executing alternative arrangements with other operators on a timely basis and on acceptable terms, including the inability to promptly establish additional interconnection links or increase interconnection bandwidths as required, could also materially and adversely affect our financial condition, results of operations and growth prospects.

Interruptions to our networks and operating systems or to those with which we interconnect, including those caused by natural disaster and service maintenance and upgrades, may disrupt our services and operations and may result in customer dissatisfaction and materially and adversely affect our financial condition, results of operations and growth prospects.

Our network infrastructure and the networks with which we interconnect are vulnerable to potential damages or interruptions from floods, wind, storms, fires, power loss, severed cables, acts of terrorism and similar events. The occurrence of a natural disaster or other unanticipated problems at our facilities or any other failure of our networks or systems, or the networks to which we are interconnected, may result in consequential interruptions in services across our telecommunications infrastructure. In 2018,2019, certain areas of China suffered from natural disasters including typhoons, floods, mountain torrents, mudslides and landslides, and these natural disasters caused extensive damage to our network equipment, including our base stations and optical fiber networks, in the affected areas. As a result, we experienced service stoppage and other disruptions in our operations in those areas and also sustained economic losses. Any future natural disasters may, among other things, significantly disrupt our ability to adequately staff our business, and may generally disrupt our services and operations. Moreover, our networks and systems and the networks with which we interconnect also require regular maintenance and upgrades. Such maintenance and upgrades may cause service disruptions. Network or system failures, as well as abrupt high traffic volumes, may also affect the quality of our services and cause temporary service interruptions. Any such future occurrence may result in customer dissatisfaction and materially and adversely affect our financial condition, results of operations and growth prospects.

Our network and systems and those of our suppliers, vendors and other service providers may be vulnerable to cyber-attacks, such as unauthorized access, computer viruses and other disruptive problems. As a telecommunications operator, we are considered a critical information infrastructure operator under the relevant PRC law and therefore are subject to the regulations designed to protect critical information infrastructure. For example, under the Cybersecurity Law of China, or the Cybersecurity Law, we are required to perform a security assessment when transferring personal information and important data overseas if such personal information and important data are collected from our operation in China.

We also devote significant resources to network security, data security and other security measures to protect our systems and data. To ensure the adequacysafeguard us against cyber-attacks and effectivenessto comply with laws and regulations related to cybersecurity, we have employed risk management and internal control systems and also adopted various measures including continuously strengthening our data security capabilities, establishing our data protection compliance policies and guidelines, self-examining potential risks of our cybersecurity policiesdata system, and procedures, we reviewimplementing an emergency action plan. See “B. Business Overview — Regulatory and assess these policies and procedures regularly, and we review and assess the security and integrity of the components of our network annually orbi-annually, depending on how critical such components are.Related Matters — Cybersecurity” under Item 4. However, we cannot assure you that the security measures, policies and procedures we have implemented will not be circumvented or otherwise can fully protect the integrity of our network, including our mobile network. The inability to operate our networks and systems or those of our suppliers, vendors and other service providers as a result of cyber-attacks, even for a limited period of time, may result in significant expenses to us and/or a loss of market share to other competitors. Unauthorized access could jeopardize the security of confidential information stored in our customers’ computer systems and mobile phone systems and may subject us to litigation, 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.

As of April 16, 2019,15, 2020, we have not been subject to any material cyber-attacks or incidents, individually or in the aggregate, that had or would expected to have a material adverse effect on our business and operations, nor had we been involved in any legal proceedings or regulatory investigations related thereto.However, there is no assurance that we will not experience them in the future. Additionally, as it is currently difficult to maintain sufficient insurance coverage relating to cybersecurity risks and incidents at commercially reasonable rates and terms, if we fall victim to any material cyber-attacks or involve in any legal proceedings or regulatory investigations relating to cybersecurity incidents, we may be subject to significant financial losses and legal liabilities, which could materially and adversely affect our results of operations, financial condition, prospects and reputation.

We are exposed to reputational and legal risks associated with telecommunications fraud carried out on our network.

Telecommunications fraud, in which a person defrauds another by means of telecommunications technologies including SMS, telephone, and Internet, exposes us to reputational and legal risks. If telecommunications fraud is committed on our network, we may be held liable for our failure to fully comply with PRC regulatory requirementstake adequate measures to prevent telecommunications fraud. In September 2016,such fraud under relevant PRC laws and regulations, including but not limited to the Announcement on Preventing and Cracking Down on Telecom and Internet Frauds jointly released by 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 issuedor the Notice on the Prevention and Combating of Telecommunications Network Fraud, and,CBRC in NovemberSeptember 2016, the MIIT issued the Practice Opinions on Further Prevention and Combating Telecommunications Information Fraud andissued by MIIT in June 2018,November 2016, the Notice on Advancing Key Tasks in Preventing Telecommunications Fraud issued by the MIIT issued Codein May 2019 and the Interpretation of Practicethe Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues concerning the Application of Law in Handling Criminal Cases Involving Crimes of Illegally Using an Information Network or Providing Aid for Registering Real IdentityCriminal Activities in Relation to Information of Phone Users, all of which require telecommunications operatorsNetwork released in October 2019.

We have carried out various technical and administrative measures to strictly require customers to register under their real names when applying for telecommunications services, which requires us to fullycontrol and promptly comply with the requirements on real-name registration. Weprevent such fraud. For example, we have implemented various measures to strengthen our management and control over sales and distribution channels, including carrying out the real-name registration system for our customers in accordance with the requirements of government authorities. In accordance with relevant laws, regulations and regulatory requirements, we have also developed a number of anti-fraud systems to detect and intercept fraud calls, spam SMS and smartphone malware, refined our customer service to facilitate the instant reporting of fraud, and strengthened the protection of customers’ personal data from unauthorized access and leakage. However, telecommunicationswe cannot and do not screen all of the information distributed through our network. There is no assurance that our measures to prevent or detect fraud will work effectively. Telecommunications fraud may still result in claims being brought against us and may damage our reputation and could have an adverse effect on our business and results of operations.

Our ultimate controlling shareholder, Unicom Group, can exert influence on us and cause us to make decisions that may not always be in the best interests of us or our other shareholders and may fail to provide services and facilities that we rely on to operate our business.

Unicom Group indirectly controlled an aggregate of approximately 79.9% of our issued share capital as of April 16, 201915, 2020 and all of our fivefour executive directors also concurrently served as directors or executive officers of Unicom Group as of the same date. As our ultimate controlling shareholder, subject to our articles of association and applicable laws and regulations, Unicom Group is effectively able to control our management, policies and business by controlling the composition of our board of directors and, in turn, indirectly controlling the selection of our senior management, determining the timing and amount of our dividend payments, approving significant corporate transactions, including mergers and acquisitions, and approving our annual budgets. The interests of Unicom Group as our ultimate controlling shareholder may conflict with our interests or the interests of our other shareholders. As a result, Unicom Group may cause us to enter into transactions or take (or fail to take) other actions or make decisions that may not be in our or our other shareholders’ best interests.

Competition from foreign-invested operators may further increase the competition for employees, exacerbate price competition and increase our operating expenses, thereby adversely affecting our financial condition, results of operations and growth prospects.

As a result of China’s accession to the World Trade Organization, or WTO, in December 2001 and the adoption of the Regulations on the Administration of Foreign-Invested Telecommunications Enterprises in January 2002, which implement China’s commitments to the WTO, the PRC Government has agreed to gradually liberalize the various segments and regions of the telecommunications market in China to foreign investors. Currently, foreign investors are permitted to own up to 49% of joint ventures that offer basic telecommunications services without any geographic restrictions in China and up to 50% of joint ventures that offer value-added telecommunications services without any geographic restrictions in China. More foreign-invested operators may enter China’s telecommunications market as a result of this liberalization. They may have greater financial, managerial and technical resources and more expertise in network management and sales and marketing than we do.

Increased competition from foreign-invested operators into the PRC telecommunications market may further increase the competition for skilled and experienced employees, exacerbate price competition and increase our customer acquisition costs and other operating expenses, and thereby adversely affect our financial condition, results of operations and growth prospects.

The previous internal reorganization of Unicom Group for the A Share offering created atwo-step voting mechanism that requires the approval of the minority shareholders of both our Company and China United Network Communications Limited (formerly known as China United Telecommunications Corporation Limited), or the A Share Company, for significant related party transactions between us and Unicom Group.

In October 2002, Unicom Group completed an internal reorganization of its shareholding in our company and the initial public offering in China of its then newly established subsidiary, the A Share Company. As part of this restructuring, a portion of Unicom Group’s indirect shareholding in our company was transferred to the A Share Company, whose business is limited to indirectly holding the equity interest of our company without any other direct business operations. A voting mechanism was established to allow public shareholders of the A Share Company to indirectly participate in our shareholders’ meetings and atwo-step voting mechanism was established for the approval of related party transactions. As a result, any significant related party transaction between us or our subsidiaries and Unicom Group or its other subsidiaries will require the separate approval of the independent minority shareholders of both our company and the A Share Company. Related party transactions approved by our independent minority shareholders nevertheless cannot proceed if they are not approved by the independent minority shareholders of the A Share Company. This adds another necessary step of approval process for those transactions. See “A. History and Development of the Company —Two-Step Voting Arrangements” under Item 4.

The benefits that we expect to enjoy relating to the mixed ownership reform of our ultimate controlling shareholder, Unicom Group, are subject to substantial uncertainty.

As part of the PRC government’s efforts to reform state-owned enterprises and increase their competitiveness, our ultimate controlling shareholder, Unicom Group, participated in a pilot program on mixed ownership reform of state-owned enterprises, and implemented a plan to diversify its shareholders’ base, or the Mixed Ownership Reform Plan, by bringing in certain strategic investors, including certain large Internet companies, into the A Share Company, our controlling shareholder. See “A. History and Development of the Company – Our Relationship with Unicom Group” and “A. History and Development of the Company — The Mixed Ownership Reform” under Item 4. The main purpose of the Mixed Ownership Reform Plan is to improve the corporate governance, incentive system and management efficiency of the A Share Company, and create synergies through cooperation with strategic investors. However, as there is substantial uncertainty with respect to our cooperation with strategic investors and the improvement in our incentive system, we cannot assure you that these benefits will be achieved as expected.

Investor confidence and the market prices of our shares and ADSs may be materially and adversely impacted if we are or our independent registered public accounting firm is unable to conclude that our internal control over financial reporting is effective in future years as required by Section 404 of the Sarbanes-Oxley Act of 2002.

We are a public company in the United States that is subject to the Sarbanes-Oxley Act of 2002. Pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we have included in this annual report a report of management on our internal control over financial reporting and an attestation report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting as of December 31, 20182019 was effective. The effectiveness of our internal control over financial reporting as of December 31, 20182019 has been audited by our independent registered public accounting firm, as stated in its report. However, we cannot assure you that, in the future, our management will continue to conclude that our internal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective for future periods, our independent registered public accounting firm may disagree. If our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our controls are documented, designed, operated, reviewed or evaluated, or if the independent registered public accounting firm interprets the relevant requirements, rules or regulations differently from us, then it may issue an adverse opinion. Any of these possible outcomes in the future could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our consolidated financial statements, which could materially and adversely affect the market prices of our shares and ADSs.

Moreover, internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal control over financial reporting, including through a failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations and there could be a material adverse effect on the market prices of our shares and ADSs.

Certain misconduct or alleged misconduct by our executive officers or employees may adversely impact the Company, including potentially by damaging our reputation, creating litigation risk, and adversely impacting the trading price of our ordinary shares and ADSs.

We are aware that certain management personnel of the Company and/or our subsidiaries engaged in or are alleged to have engaged in unlawful conduct, including acceptance of bribes. In response to management misconduct, we have taken and will continue to take various measures, including enhancing our employees’ compliance awareness and taking steps to confirm that our risk management and internal control procedures are robust. However, we cannot be certain that these measures will effectively detect or prevent future employee misconduct. If these measures prove ineffective in detecting or preventing future employee misconduct, among other things our reputation could be harmed, our operations could be disrupted and the trading price of our ordinary shares and ADSs could be adversely impacted.

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

Our continued success and growth depends on our ability to identify, hire, train and retain suitably skilled and qualified employees, including management personnel, with relevant professional skills. The services of our directors and members of senior management are essential to our success and future growth. If there is a loss of a significant number of our directors and senior management, and we are unable to find suitable replacements in a timely manner, our business could be materially and adversely affected. As we have to compete for a limited supply of qualified employees, such as managerial, sales, administration, research and development, or R&D, and operating personnel with adequate skills and experience, in China, we may not be able to successfully attract, assimilate or retain all of the personnel we need. We may also need to offer superior compensation and other benefits to attract and retain key personnel and therefore cannot assure you that we will have the resources to fully achieve our staffing need. In addition, if any director or any member of our senior management team or any of our other key personnel were to join a competitor or carry on a competing business, we may lose customers and key professionals and staff members. Due to the intense competition for management and other personnel and qualified employees in the telecommunications industry in Mainland China, any failure to recruit and retain the necessary management personnel and other qualified employee could have a material adverse effect on our business and prospects.

Risks Relating to the Telecommunications Industry in China

Government regulation of the telecommunications industry in China may affect our ability to respond to market conditions or competition, and may have a material adverse effect on our financial condition, results of operations and growth prospects.

As a telecommunications operator in China, we are subject to regulation by, and under the supervision of, the MIIT, which is the primary regulator of the telecommunications industry in China. The MIIT is responsible for formulating policies and regulations for the telecommunications industry, granting telecommunications licenses, allocating frequency spectrum and numbers, formulating interconnection and settlement arrangements between telecommunications operators, and enforcing industry regulations. Other PRC Governmental authorities also regulate capital investment and foreign investment in the telecommunications industry. See “B. Business Overview — Regulatory and Related Matters” under Item 4. The regulatory framework within which we operate may constrain our ability to implement our business strategies and limit our ability to respond to market conditions or to changes in our cost structure. Moreover, we operate our businesses pursuant to approvals granted by the State Council and under licenses granted by the MIIT. If these approvals or licenses were revoked or suspended, our business and operations would be materially and adversely affected. In addition, we are subject to various regulatory requirements as to a wide range of matters relating to our business operations, including service quality and real-name registration for telecommunications service subscribers and other actions, and failure to comply with such requirements may subject us to mandatory penalties or other punitive measures, any of which could have a material adverse effect on our financial condition, results of operations and growth prospects. Furthermore, we cannot assure you that we will not experience any adverse effect on our business during the course of our compliance with regulatory requirements in the PRC telecommunications industry. Similarly, the PRC regulators may promulgate and implement new regulations, rules and policies on the telecommunications industry from time to time, and we cannot guarantee that any such new regulations, rules or policies will not have a material adverse effect on our financial condition, results of operations and growth prospects.

Potential changes in laws, regulations and policies relating to the PRC telecommunications industry or any future industry restructuring may materially and adversely affect our financial condition, results of operations and growth prospects.

The PRC Government continues to regulate many aspects of the telecommunications industry in China. Potential changes in laws, regulations and policies and their implementation could lead to significant changes in the overall industry environment and may have a material adverse effect on our financial condition, results of operations and growth prospects. The PRC Government has been adjusting and improving its regulatory oversight of the telecommunications industry, including further deregulating telecommunications tariffs.

For example, in December 2016, the amended Regulations of People’s Republic of China on the Management of Radio Operation came into effect, which provides that permission for using certain radio frequency bands may be obtained through bidding processes or auctions. As such, competition for radio frequencies could become more intensive in the future, and as a result we may not be able to obtain all desirable radio frequencies at commercially acceptable terms, or at all, which may have a material adverse effect on our results of operations and growth prospects.

Relevant departments of the PRC government, under the direction of the State Council, are currently preparing a telecommunications law to provide a uniform regulatory framework for the telecommunications industry in China. As of the date of this annual report, the telecommunications law has not yet been officially promulgated by the PRC Government. The promulgation of the telecommunications law and other new telecommunications regulations or rules, or future changes thereto, such as enforcement of existing regulations and policies, may materially and adversely affect our financial condition, results of operations and growth prospects.

Issues may also arise regarding the interpretation and enforcement of China’s WTO commitments regarding telecommunications services. For example, the PRC government has started mobile number portability pilot programs in certain provinces and cities, and announced in March 2019 to implement the program nationwide in China by the end of 2019. Any future regulatory changes, such as those relating to the issuance of additional telecommunications licenses, mobile telecommunications resale business, interconnection and settlement arrangements, changes in technical and service standards, universal service obligations, spectrum allocation and number allocation, may have a material adverse effect on our business and operations.

Risks Relating to Doing Business in China

Our operations may be materially and adversely affected by changes in China’s economic, political and social conditions.

Substantially all of our business operations are conducted in China and substantially all of our revenue is derived from our operations in China. Accordingly, our business, financial condition, results of operations and prospects may be adversely affected by changes in China’s economic, political and social conditions. The PRC economy differs from the economies of most developed countries in many respects, including with respect to the extent of government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past threefour decades, growth has been uneven across different regions and among various economic sectors. The PRC Government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have an adverse effect on us. For example, our financial condition and results of operations may be materially and adversely affected by government control over outbound investments.

Fluctuations in the value of the Renminbi could adversely affect the prices of our shares and ADSs as well as our profitability.

Substantially all of our revenue and costs and expenses are denominated in Renminbi, while a portion of our borrowings, equipment purchases and other capital expenditures are denominated in foreign currencies. On July 21, 2005, the PRC Government changed itsdecade-old policy to permit Renminbi to fluctuate within a narrow and managed band against a basket of certain foreign currencies determined by the People’s Bank of China, or the PBOC. On May 19, 2007, the PBOC announced a policy to further expand the maximum daily floating range of RMB trading prices against the U.S. dollar in the inter-bank spot foreign exchange market. With the increased floating range of the Renminbi’s value against foreign currencies, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar or other foreign currencies in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued, or it may be permitted to enter into a full float. In addition, the recentCOVID-19 pandemic has led to disruption and volatility in the global financial markets, which may increase uncertainties in the foreign exchange markets and also fluctuations of the Renminbi. Increased fluctuations of the Renminbi could adversely affect the value in foreign currency terms of cash flow generated from our operations or any dividends payable on our shares and ADSs, and therefore the price of our shares and ADSs. Any future Renminbi devaluations could also increase our equipment importation costs or lead to significant fluctuations in the exposure of our foreign-currency-denominated liabilities, thereby adversely affecting our profitability. For further information on our foreign exchange risks and certain exchange rates, see “Exchange Rate Risk” under Item 11.

Uncertainties in the PRC legal system could limit the legal protections available to us and to foreign investors and materially and adversely affect our financial condition, results of operations and growth prospects.

Our wholly owned operating subsidiary, CUCL, is organized under the laws of PRC and is generally subject to laws and regulations applicable to foreign-invested enterprises in China. The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases may be cited for reference but have limited precedential value. Since 1979, theThe PRC Government has promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, property, taxation and trade. However, because some of these laws, rules and regulations areremain relatively new,untested, and because of the relatively limited volume of published cases and theirnon-binding nature, interpretation and/or enforcement of these laws and regulations involves uncertainties, which may limit the remedies available to you as an investor and to us in the event of any claims or disputes with third parties. In addition, any litigation in China may be protracted and result in costs and diversion of resources and management attention. Therefore, the protection provided by the PRC legal system may not be the same as the legal protection available to investors in the United States or elsewhere. Furthermore, various uncertainties involved in the rulemaking, interpretation and enforcement process of the laws, regulations and rules in China that are related to our business operations, in particular, those in respect of telecommunications and enterprise income tax, may also materially and adversely affect our financial condition, results of operations and growth prospects.

Natural disasters and health hazards in China may severely disrupt our business and operations and may severely restrict the level of economic activities in affected areas, which in turn may have a material adverse effect on our financial condition and results of operations.

Natural disasters such as earthquakes, snowstorms and floods may result in significant and extensive damage to our base stations and network equipment. Moreover, certain countries and regions, including China, have encountered incidents of bird flu, or avian flu, as well as severe acute respiratory syndrome, or SARS, and the outbreak of influenza A (H1N1) and most recentlyCOVID-19. See “ — Risks Relating to Our Business — Our business may be materially and adversely affected by the coronavirus pandemic.” In addition, in the past. In 2018,2019, certain areas of China suffered from natural disasters including typhoons, floods, mountain torrents, mudslides and landslides, and these natural disasters caused extensive damage to our network equipment, including our base stations and optical fiber networks, in the affected areas. We are unable to predict the effect, if any, that any other future natural disasters and health hazards may have on our business. We may face additional health care challenges as a result of public health crises, pandemics or epidemics. For example, there is a risk that the recentCOVID-19 pandemic may significantly impair the health of our employees. 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, natural disasters and health hazards may severely restrict the level of economic activities 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 China may have a material adverse effect on our financial condition and results of operations.

Our investors do not have the benefit to rely on the Public Company Accounting Oversight Board inspection of our independent registered public accounting firm.

As a company registered with the U.S. Securities and Exchange Commission, or the SEC, and traded publicly in the United States, our independent registered public accounting firm is required by the laws of the United States to be registered with the Public Company Accounting Oversight Board, or the PCAOB, and undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. The PCAOB, however, is currently unable to inspect a registered public accounting firm’s audit work relating to a company’s operations in China where the documentation of such audit work is located in China. Accordingly, our independent registered public accounting firm’s audit of our operations in China is not subject toinspected by the PCAOB inspection.currently.

The PCAOB has conducted inspections of independent registered public accounting firms outside of China and has at times identified deficiencies in the audit procedures and quality control procedures of those accounting firms. Such deficiencies may be addressed in those accounting firms’ future inspection process to improve their audit quality. Due to the lack of PCAOB inspections of audit work undertaken in China, our investors do not have the benefit of the regular evaluation by PCAOB of the audit works, audit procedures and quality control procedures of our independent registered public accounting firm.

Had the settlement terms are not been adhered to, Chinese member firms of “Big Four” accounting firms may becould have been suspended from practicing before the SEC which could in turn delay the timely filing of our financial statements with the SEC. In addition, it could be difficult for us to timely identify and engage another registered public accounting firm to audit and issue an opinion on our financial statements. A delinquency in our filings with the SEC may result in NYSE initiating delisting procedures, which could adversely harm our reputation and have other material adverse effects on our overall growth and prospect.

Risk Relating to our ADSs

Holders of our ADSs will not have the same voting rights as the holders of our shares and may not receive voting materials in time to be able to exercise their right to vote.

Except as described in this annual report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares represented by our ADSs on an individual basis. Holders of our ADSs will receive proxy materials with respect to matters to be voted on at a meeting of shareholders through the depositary and may only exercise voting rights by appointing the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. Consequently, if the materials to be forwarded to holders of ADSs by the depositary are delayed or if the depositary sets deadlines by which holders of ADSs must give their instructions regarding how to vote that fall too soon after mailing of the proxy materials, the holders of our ADSs may not receive voting materials in time to instruct the depositary to vote. Thus, it is possible that such holders, or persons who hold their ADSs through brokers, dealers or other third parties, may not have the opportunity to exercise a right to vote.

Restructurings of the Telecommunications Industry

In May 2008, the MIIT, the NDRC and the MOF issued a joint announcement relating to the further reform of the PRC telecommunications industry. According to the joint announcement, the principal objectives of such further reform included, among others: (i) supporting the formation of three telecommunications service providers of comparable scale and standing, each with nationwide network resources, full-service capabilities and competitive strength, in order to help optimize the allocation of telecommunications resources and foster market competition; (ii) promoting homegrown innovation by telecommunications service providers; and (iii) enhancing the service capabilities and quality of, and the regulatory framework governing, the telecommunications industry. To achieve these objectives, the three ministries encouraged the following restructuring transactions: (a) the acquisition by China Telecom of the CDMA network (including both assets and subscriber base) then owned by Unicom Group; (b) the merger between China Unicom and China Netcom; (c) the transfer of the basic telecommunications service business operated by China Satellite into China Telecom; and (d) the consolidation of China Tietong into China Mobile. The detailed implementation plans relating to these restructuring transactions were subsequently formulated by the relevant parties and, as a result, China Mobile, China Telecom and we became the current three major telecommunications operators in China, each providing a full range of telecommunications services nationwide.

Sale of CDMA Business, Merger with China Netcom and Related Transactions

Disposal of CDMA Business and Related Transactions

In October 2008, we, through CUCL, disposed of our CDMA business and certain other assets to China Telecom, which included (i) the entire CDMA business owned and operated by CUCL, together with the assets of CUCL that are relevant to the CDMA operations and the rights and liabilities of CUCL relating to its CDMA subscribers, (ii) the entire equity interest in China Unicom (Macau) Company Limited, our wholly owned subsidiary, and (iii) all of the 99.5% equity interest in Unicom Huasheng Telecommunications Technology Company Limited, a limited liability company incorporated under the laws of the PRC, held by CUCL. The consideration for the disposal was RMB43.8 billion in cash. In addition, in connection with the disposal, Unicom Group and Unicom New Horizon also disposed of their CDMA network to China Telecom at a consideration of RMB66.2 billion in October 2008.

Merger with China Netcom and Related Transactions

On October 15, 2008, following the approval of the merger by our shareholders and the shareholders of China Netcom at shareholders’ meetings held on September 16, 2008 and September 17, 2008, respectively, and the satisfaction of all other conditions, the merger between China Unicom and China Netcom by way of a scheme of arrangement of China Netcom. As a result, China Netcom became our wholly owned subsidiary and the listings of China Netcom’s ordinary shares and ADSs on the HKSE and the NYSE, respectively, were withdrawn, and our name changed from “China Unicom Limited” to “China Unicom (Hong Kong) Limited” on October 15, 2008. Our stock trading code on the HKSE and our ticker symbol on the NYSE remain unchanged.

Unicom Group transferred certain of its telecommunications assets, rights and liabilities to CUCL (which became our wholly owned subsidiary in China) in April 2000 in preparation for our initial public offering, or IPO. In June 2000, we successfully completed our IPO. Our ordinary shares are listed on the HKSE and our ADSs, each representing 10 of our ordinary shares, are listed on the NYSE.

Unicom Group holds the licenses required for our telecommunications businesses and we derive our rights to operate our businesses from our status as a subsidiary of Unicom Group. Unicom Group undertook to hold and maintain all licenses received from the MIIT in connection with our businesses solely for our benefit during the term of such licenses and at no cost to us. In addition, Unicom Group undertook to take all actions necessary to obtain and maintain for our benefit such governmental licenses or approvals as we shall require to continue to operate our businesses. Unicom Group also agreed not to engage in any business which competes with our businesses other than the then-existing competing businesses of Unicom Group and to grant us a right of first refusal in relation to any government authorization, license or permit, or other business opportunity to develop any new telecommunications technology, product or service. Finally, Unicom Group also gave us an undertaking not to seek an overseas listing for any of its businesses or the businesses of its subsidiaries in which we have engaged or may engage in the future, except through us.

Set forth below is our shareholding structure as of April 16, 2019.

The voting mechanism described above, however, will not apply to the approval process for any related party transaction between us or our subsidiaries and Unicom Group or its subsidiaries, on which Unicom BVI will not be permitted to vote under the Rules Governing the Listing of Securities on HKSE, or the HKSE Listing Rules. Those related party transactions would require the separate approvals of the public shareholders of each of our company and the A Share Company. We and the A Share Company therefore created thetwo-step voting arrangements, pursuant to which each related party transaction between us or our subsidiaries and Unicom Group or its subsidiaries will consist of an initial agreement and a further agreement. The initial agreement would be entered into by Unicom Group or its subsidiaries (excluding the A Share Company and its subsidiaries) on the one hand and the A Share Company or Unicom BVI on the other hand. The initial agreement would contain the following terms:

In October 2015, we, through our wholly owned subsidiaries, CUCL and Unicom New Horizon, entered into a transfer agreement with (i) China Mobile Communication Company Limited, a subsidiary of China Mobile, and its 31 subsidiaries, (ii) China Telecom Corporation Limited, a subsidiary of China Telecom, (iii) China Reform Holdings Corporation Limited, a wholly State-owned company, and (iv) the Tower Company, pursuant to which we, China Mobile and China Telecom sold certain telecommunications towers and related assets to the Tower Company, the Tower Company would issue and allot shares in the Tower Company and/or pay certain cash as consideration for such transfers, and China Reform Holdings Corporation Limited agreed to subscribe for new shares in the Tower Company in cash. Following the completion of the transaction, the Tower Company was owned by China Mobile, China Telecom, China Reform Holdings Corporation Limited and us with an ownership interest of approximately 38%, 27.9%, 6% and 28.1%, respectively. The Tower Company completed its initial public offering and listed on the main board of the HKSE in August 2018, and as a result, our equity interest in it was diluted. As of April 16, 2019,15, 2020, we, through CUCL, owned approximately 20.65% equity interest in the Tower Company.

In July 2016, we, through our wholly owned subsidiary, CUCL, and the Tower Company entered into the Pricing Agreement under which we lease telecommunications towers and related assets from the Tower Company for an initial term of five years. In January 2018, pursuant to the Pricing Agreement and afterarm-length negotiations and discussions, we, through our wholly owned subsidiary, CUCL and the Tower Company entered into the Supplementary Agreement, which adjusted certain terms and provisions in the Pricing Agreement and annex thereto in relation to the leasing of the tower products. See “B. Related Party Transactions” under Item 7 for major items of the Pricing Agreement and the Supplementary Agreement, including pricing for the lease.

In connection with the Mixed Ownership Reform Plan, the A Share Company and Unicom Group, mainly using the funds from the Mixed Ownership Reform Plan to make capital contributions into Unicom BVI, our direct controlling shareholder. Upon completion of such capital contribution, Unicom BVI entered into the Share Subscription Agreement with us on August 22, 2017, pursuant to which Unicom BVI agreed to subscribe for a maximum of 6,651,043,262 newly issued shares of us, or the Subscription Shares, at the subscription price of HK$13.24 per share, or the Subscription. In November 2017, after all conditions precedent to the subscription have been satisfied, we have completed the allotment and issuance of the Subscription Shares, as a result of which an aggregate of 6,651,043,262 new shares have been issued for cash consideration of HK$13.24 per share to Unicom BVI and the gross proceeds of the Subscription amounted to approximately HK$88,059.81 million. See “B. Related Party Transactions — The Share Subscription by Unicom BVI in Relation to the Mixed Ownership Reform Plan” under Item 7 for information concerning the Subscription. We intend to use theThe proceeds from the Subscription have mainly been used to upgrade our 4G network capabilities, develop technology and launch trial programs in relation to 5G network, develop innovative businesses and repay bank loans.

Mobile Services

Our mobile services consist of GSM, 3G, 4G and 4G5G services. In recent years, we have focused on 4G services. Our 4G services adopt two major variants of 4G LTE technologies, being the Time Division LTE technology, orTD-LTE, and the Frequency-Division LTE technology, orLTE-FDD. We also commercially launched our 5G services in October 2019 and rolled out the brand “5Gⁿ” to promote our 5G services. We share the 5G networks with China Telecom which operate at 3400-3500 MHz and 3500-3600 MHz frequency bands. Our mobile services primarily consist of mobile voice services and mobilenon-voice services. Our mobile voice services enable our subscribers to make and receive phone calls, including local calls, domestic long-distance calls, international, Hong Kong, Macau and Taiwan long-distance calls, intra-provincial roaming, inter-provincial roaming and international roaming, with a mobile handset at any point within the coverage area of our mobile telecommunications networks. Our mobilenon-voice services primarily include (i) mobile data services, (ii) mobile data and Internet application services, such as big data and Internet of things, or IoT, services, and (iii) other mobile services, for example, value-added services, including SMS, mobile reading, mobile music and “WO App Store”, and other services.

4G Subscribers

The total number of our 4G subscribers increased from 174.9 million as of December 31, 2017 to 219.9 million as of December 31, 2018.2018 to 253.8 million as of December 31, 2019. 4G subscribers are referred generally to subscribers who possess 4G handsets, use our 4G networks and have revenue contribution in the December of the relevant years. The increase in our total number of 4G subscribers was primarily due to (i) our marketing initiativesdifferentiated 4G products offerings, which comprise a broad selection of basic package service plans and customizable options to effectively reach customers through new marketing channels, for example, we offer data promotion or other packages to usersmeet customers’ diversifying demands of Internet companies by cooperating with such Internet Companies under 2I2C model,products and we offer group service packages to the employees of enterprises, governments and other organizations by cooperating with them under 2B2C model,services; and (ii) our offeringInternet-based marketing initiatives which effectively reached customers through data-driven precise targeting, marketing covering all usage scenarios and diversified means of delivery and established our innovative products tailored to customers’ potential demand, such as our“Ice-cream Package” that targets athigh-end customers by offering unlimited domestic usage of mobile data and mobile voice under certain prescribed terms.cost-effective touchpoint networks with a broad customer coverage.

Fixed-Line Services

We are a leading fixed-line broadband and communications operator in northern China. We offer a wide range of fixed-line services nationwide in China, including (i) fixed-line broadband access services, (ii) fixed-line voice services, (iii) transmission lines usage and associated services, (iv) data and Internet application services, and (v) fixed-line other services.

Fixed-Line Broadband Access Services

Fixed-line broadband access services are one of our emphases as part of our strategy to focus on high growth services and also the foundation for the development of our mobile network and services.strategic development. The growth in fixed-line broadband access services has been driven by the increasing affordability and rising use of personal computers and other Internet access devices, gradual recognition by businesses of the importance of information and the proliferation of content and applications, such as online games andvideo-on-demand. We are a leading provider of fixed-line broadband access services in our fixed-line northern service region and we seek to maintain this leading position by capitalizing on our extensive high-speed fixed-line network, large customer base, experienced sales force, established brand and strategy of multi-service bundling.

In 2018,2019, we focused on “Big Video, Big Integrationthe integration of our fixed-line broadband services, mobile services and High-bandwidth” andsmart hardware products. We optimized our integrated broadband service packages with high-bandwidth and enriched video content portfolio, androlled out a number of new smart home service offerings. We launched “New Video, High Qualityofferings, and Toll-free Experience” initiative to optimizepromoted our user engagement. Our subscriber retention measures include increasing bundling penetration, top up with videohigh quality gigabit broadband services extending contract period, value enhancement, etc. We made improvements to our online sales capability and our middle-office support.in selected cities. We also promotedenhanced our penetration into more household customers by cooperating with Internet companies and other enterprises under our innovative marketing models such as the 2I2Hsub-division(to-InternetCompany-to-Household) and contract out, or mini CEO’s initiative, in order to stimulate front-line vibrancy and thus promoting business development.2B2H(to-Business-to-Household) models. As of December 31, 2018,2019, our fixed-line broadband subscribers increased by 5.7%3.2% to approximately 80.983.4 million, of which subscribers with100Mbps-and-above bandwidth accounted for 75.2%82% of all fixed-line broadband subscribers, representing an increase of 36.56.8 percentage points from the end of 2017.2018. Our fixed-line broadband access ARPU decreased by 3.7%6.7% from RMB46.3 in 2017 to RMB44.6 in 2018 to RMB41.6 in 2019 primarily due to (i) implementation of the PRC Government’s policy of increasing network speed and reducing tariffs and (ii) intensifying competition, in particular, competition as a result of our competitors’ aggressive marketing strategies involving low tariff and product bundling. As of December 31, 2016, 2017 and 2018, we had approximately 75,236,000, 76,539,000 and 80,879,000 fixed-line broadband subscribers, respectively.market competition.

Fixed-Line Voice Services

Our fixed-line voice services primarily consist of local voice, domestic long-distance, international long-distance and interconnection services. Along the continuous migration of users from fixed-line voice services to mobile services, the number of our fixed-line local access subscribers was 66.7 million, 60.0 million, 55.9 million and 55.954.2 million as of December 31, 2016, 2017, 2018 and 2018,2019, respectively.

Transmission lines usage and associated services

We are a leading provider of data communications services in our fixed-line northern service region. We offer data products, such as those based on digital data networks, or DDN, frame relay, asynchronous transfer mode, or ATM, and Internet protocol-virtual private network, orIP-VPN. We also offer transmission line products, including domestic and international leased circuits. Our customers for these services include government entities, large financial institutions and other domestic and multinational businesses, Internet service providers and other telecommunications operators. In 2018,2019, we continued to offer full-scale data communications services to international operators and domestic and international corporate customers. We have also improved our capabilities to offer cross-border data communications and integrated information services.

Fixed-Line Data and Internet Application Services

We offer fixed-line data and Internet application services, such as Internet data center, or IDC, cloud computing, information technology services and other services. In 2018,2019, we actively leverageddeveloped our advantages inintegrated cloud and network operation services targeting at enterprise and informatization,government customers which featured cross-regional transmission, data and cloud services. As of December 31, 2019, we have developed the premium smart network service for enterprise and government customers covering 31 provinces and 220 cities. In addition, our cloud network has achieved theend-to-end transmission serving dynamic and flexible bandwidth on demand. We continued to implement our new integrated sales model “Cloud+“Cloud + Smart Network+X”Network + Intelligent Application” targeting at government and enterprises, which led to substantial growth in our IDC and cloud computing services. As of December 31, 2018,2019, we had approximately 373516 IDC nationwide, 160,000234,000 racks supporting our IDC services, and 109T170T IDC bandwidth, and, additionally, the resource pool of our “WO” platform consists of 4441 public resource pools and 5846 private cloud resource pools, with storage capacity of 21.7 PB,26PB, Internet capacity of 1,100 G1,700G and computing capacity of 812,000850,000 cores.Furthermore, the COVID-19 outbreak also accelerated the demand for online, intelligent and cloud-based services, thereby creating new opportunities for us. In 2020, we innovated our Internet application service offerings and rolled out a number of services utilizing 5G, cloud and other technologies.

Fixed-Line Other Services

Our fixed-line other services primarily include fixed-line voice value-added services, installation of fixed-line equipment services, Internet hosting services, telecommunications equipment and real property leasing services and other services.

Sales of Telecommunications Products

Our sales of telecommunications products primarily comprise sales of mobile handsets, fixed-line terminals and accessories. Revenue from our sales of telecommunications products increaseddecreased by 5.3%3.9% from RMB25.8 billion in 2017 to RMB27.2 billion in 2018 to RMB26.1 billion in 2019, which accounted for 9.4%9.3% and 9.3%9.0% of our total revenue in 20172018 and 2018,2019, respectively.

Interconnection and Roaming Arrangements

Interconnection

Interconnection refers to the arrangements that permit the connection of our telecommunications networks with other networks. Our mobile and fixed-line networks interconnect with Unicom Group’s networks. Under current arrangements, settlement between Unicom Group and us is based on an internal settlement standard that takes into account either the internal costs of the relevant networks or the government standard applicable between third-party operators, whichever is the more favorable to us.

We charge interconnection fees for terminating or transiting calls that originate from other domestic telecommunications operators’ networks and pay interconnection fees to other operators for calls originating from our networks that are terminated on their networks. We earn and pay such fees in respect of mobile calls, local and domestic and international long-distance calls and Internet services. We are required to pay the interconnection fees regardless of our ability or inability to collect the tariff from our subscribers. Interconnection charges are accrued on a monthly basis based on the actual call volume and applicable tariff rates.

All interconnection and settlement arrangements among domestic telecommunications operators in China are governed by the Telecommunications Regulations and the rules on interconnection arrangements and settlement promulgated by the MIIT. Some of the agreements pursuant to which we interconnect with other domestic operators were entered into by Unicom Group. We have entered into an agreement with Unicom Group pursuant to which we have agreed with Unicom Group that the costs and benefits arising under these agreements, as they relate to our operations, will be incurred to our account.

For additional information about our domestic and international interconnection arrangements, see “B. Business Overview — Regulatory and Related Matters” under Item 4 and “B. Related Party Transactions” under Item 7.

We have deployed GSM, WCDMA, LTE and LTE5G mobile networks. Our 2G, 3G and 4G mobile network mainly operates at 900 MHz, 1800 MHz and 2100MHz frequency bands for FDD network, and 2300-2320 MHz and 2655-2675we own the frequency band of 3500-3600MHz for operating our 5G mobile network. In the future, we also plan to refarm 2x25Mhz of spectrum in 2100 MHz frequency bandsband for TDD network.5G networks. In 2016, Unicom Group was granted the approval to refarm all frequency bands for FDD network to deploy LTE network. By end of 2019, Unicom Group currently ownsowned 2x61 MHz of spectrum in the frequency bands for FDD network, of which Unicom Group has deployed UMTSLTE network and GSM network and is constructing LTEUMTS network using 2x6 MHz of spectrum in the 900 MHz frequency band. Unicom Group has deployed LTE network and GSM network using 2x30 MHz of spectrum in 1800 MHz frequency band and LTE network and UMTS network using 2x25 MHz of spectrum in 2100 MHz frequency band. In addition,January 2020, Unicom Group has achieved converged networkalso obtained 2x5 MHz of spectrum in the 900 MHz frequency band for LTE,NB-IoT and eMTC networks. Most parts of the 2555-2575 MHz frequency band initially allocated to Unicom Group forTD-LTE network andhave been returned to the PRC government by end of July 2019. Unicom Group also has deployed part of theFDD-LTETD-LTE network by deployingTDD-LTE network inusing 2300-2320 MHz frequency band which is limited(limited to indoor network and in 2655-2675 MHz frequency band.network).

Marketing, Sales and Distribution

Our marketing strategy is to establish our image as a full-service telecommunications service provider and utilize our comprehensive service platform and nationwide sales and distribution network.

We provide user-oriented product offerings comprised of a mix of products catering to users with diversifying demands. For example, we offer“Ice-cream Package” that includes unlimited domestic usage of mobile data and mobile voice under certain prescribed terms to targethigh-end customers and “Tencent King Card” that targets at heavy data users of Tencent mobile applications by offering unlimited mobile data usage for Tencent mobile applications. We also offer data promotion or other packages to users of Internet companies under 2I2C model and group service package to the employees of enterprises, governments and other organizations under 2B2C model.

Leveraging our integrated online and offline operation system, we achieved express matching and delivery of orders and also enhanced management of key steps of our order fulfillment process. We efficiently improved our overall order conversion rate through enhancing the conversion rate of online orders.

Information Systems

We have established multiple information technology support systems in our headquarters as well as in each province, autonomous region and municipality and comprehensive information systems in each province, autonomous region and municipality to support our business and management. For business support, we have established core systems composed of a cloud-based customer relationship management system, a comprehensive cloud-based billing and accounting system and ane-commerce system to support our business operations. Leveraging our light touchpoints andbusiness middle-office support, our innovative online marketing strategies further improved customers’ perception of our services. We also upgraded our IT framework and established an API opening platform, to facilitate cooperation with our business partners. In addition, we enhancedcontinued to enhance our independent research capability. For example,capability and we independently developed 50.3%50.5% of our core business support system. Furthermore, we have established integrated systems, such as integrated business support system for corporate groupgovernment and enterprise customers, integrated channels management system, integrated account settlement system and integrated partnership management system to achieve integrated and centralized management of our businesses and enhance our sales and service capabilities through electronic channels. We also utilized a proprietary cloud-based IT ecosystem that integrates the research and development activities of our headquarters and provincial branches and significantly improves our operational efficiency while lowers the costs. For our management support, we focused on the construction and optimization of a comprehensive enterprise resource planningour intelligent financial data sharing system to optimizeenhance the efficiency of our work process and resource allocations, improve our customer perception and enhance our operational efficiency, which supported our mini CEO initiative.internal financial data sharing. For our internal data service capabilities, we have established an integrated data analysis system, launched the data middle office construction to compile all operational data of a large data platform and compiled all data relating to our operation and business support tosystems, support our appraisal management and operational analysis with data. For the application of new technologies, we have launched the construction of our centralized private “cloud” and developed our capabilities in automatic and intelligent management of our information system to enhance the performance of the systems with new technologiesdata, as well as loweroptimize our business operation. For the overall costdevelopment of maintenancenew businesses, we have reformed a number of information system.centralized IT systems to support our 5G commercialization.

We also devoted our R&D resources to innovate and develop our 5G technologyproduct offerings. We explored the combination of 5G and cloud computing technologies and conducted researches and trials in innovative fields, such as high-dissolution videos, augmented reality andcloud-based virtual reality, broadcasting, live streaming, gaming, self-driving, mobile healthcare, Internet of cars, drones, healthcare, and drones. We have begun the field test of 5G network and would implement commercialization of 5G services when market conditions are favorable.education.

Competition

As a result of the telecommunications industry restructuring in 2008, the Chinese telecommunications market now has three key providers of basic telecommunications services — China Telecom, China Mobile and us — in addition to thousands of value-added service providers and other companies that provide telecommunications or related services. We compete with China Mobile and China Telecom in virtually all aspects of our services, including mobile services, fixed-line voice services, broadband services and data communications services. In May 2016, the MIIT granted to China Radio and Television Network Co. Ltd.Broadcasting the approval to operate fixed-line broadband business. We may also compete with China Radio and Television Network Co. Ltd.Broadcasting in fixed-line broadband business. As Unicom Group, China Mobile and China Telecom were granted the license to operateTD-LTE mobile services by the PRC Government in December 2013, Unicom Group and China Telecom were granted the license to operateLTE-FDD mobile services in February 2015 and China Mobile was granted the license to operateLTE-FDD mobile services in April 2018, we face intensive competition in the 4G services. We also face potential fierce competition as to 5G services, asservices. In December 2018, Unicom Group was granted the permit to use the frequency band of 3500-3600MHz for launching the trial of 5G system nationwide in Mainland China, and China Mobile was granted the frequency band of 2515MHz-2675MHz2515-2675MHz and 4800MHz-4900MHz,4800-4900MHz, and China Telecom was granted the frequency band of 3400 MHz-3500 MHz3400-3500MHz. Furthermore, in December 2018. June 2019, the MIIT granted the permit to operate 5G digital cellular mobile communications service to Unicom Group, China Mobile, China Telecom, and China Broadcasting, respectively.

In addition, the PRC Government recently published a series of regulations to encourage privately-owned enterprises to enter PRC telecommunications industry, including the formal commercialization of telecommunications resale business, pursuant to which the MIIT would accept applications from privately-owned enterprises to acquire mobile communications services from China Mobile, China Telecom or us and repackaging and rebranding such services for resale toend-users. The MIIT also requires 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, and we may face competition from these privately-owned enterprises. We also face increasing competition from other service providers, such as cable television companies and Internet service providers, which compete against our broadband access, voice and messaging services and other services by offering telecommunications or related services. See “D. Risk Factors — Risks Relating to Our Business — We face intense competition from other telecommunications operators, including China Mobile and China Telecom, and other companies that provide telecommunications or related services, which may materially and adversely affect our financial condition, results of operations and growth prospects” and “D. Risk Factors — Risks Relating to Our Business — Competition from foreign-invested operators may further increase the competition for employees, exacerbate price competition and increase our operating expenses, thereby adversely affecting our financial condition, results of operations and growth prospects” under Item 3, respectively.

In December 2015, we and Telefónica established a joint venture company, Smart Steps Digital Technology Co., Ltd., or Smart Steps, to engage in big data application services in China. In April 2019, JD Digits Technology Holding Co., Ltd, or JD Digits, made a strategic investment in Smart Steps, upon completion of which, we, Telefónica and JD Digits had a shareholding interest of approximately 45.8%, 37.5% and 16.7% in Smart Steps, respectively. The strategic partnership with Telefónica and JD Digits is expected to integrate our big data resources, technologies and capabilities and thus contributing to the big data service capabilities of Smart Steps.

Strategic Cooperation with China Telecom

In January 2016, we entered into a strategic cooperation agreement with China Telecom in relation to resource-sharing and joint investments. Under the strategic cooperation, we agreed to share certain telecommunications facilities such as mobile networks and transmission networks with each other, jointly carry out certain network maintenance services and certain marketing initiatives, as well as seek and explore opportunities in joint investments in innovative and emerging business areas. Our strategic cooperation is expected to enhance our service qualities and operating efficiency, and thus improving our customer experience and contributing to our market recognition.

On September 9, 2019, we, through our wholly owned subsidiary, CUCL, entered into a framework agreement with a subsidiary of China Telecom, China Telecom Corporation Limited, in relation to the cooperation on building and sharing of 5G access networks. See “— Networks — Mobile Networks” under Item 4 for details.

Trademarks

We conduct our businesses under the Unicom name and logo. Unicom Group is the registered proprietor in China of the “Unicom” trademark in English and the trademark bearing the Unicom logo. Unicom Group is also the registered proprietor of the trademark of the word “Unicom” in Chinese (“联通”). Unicom Group has granted us the right to use these trademarks on a royalty-free basis with periodic renewals, and licensed us any trademark that it registers in China in the future which incorporates the word Unicom.

Regulatory and Related Matters

The telecommunications industry in China is subject to a high degree of government regulation. The primary regulatory authority of the Chinese telecommunications industry is the MIIT, established in 2008 as a new ministry under the PRC State Council and the successor of the former Ministry of Information Industry. The NDRC, the Ministry of Commerce and other governmental authorities also maintain regulatory responsibilities over certain aspects of the Chinese telecommunications industry.

The MIIT, under the supervision of the State Council, is responsible for, among other things:

The MIIT has established a Telecommunications Administration in each province, autonomous region and municipality in China to oversee the implementation of the MIIT’s policies and regulations and exercising regulatory authority delegated by the MIIT within that province, autonomous region or municipality.

Relevant departments of the PRC government, under the direction of the State Council, are in the process of drafting a telecommunications law that, once adopted by the National People’s Congress of the PRC, will become the basic telecommunications statute and provide the principal legal framework for telecommunications regulations in China. It is currently uncertain when the law will be adopted and become effective. See “D. Risk Factors — Risks Relating to the Telecommunications Industry in China — Potential changes in laws, regulations and policies relating to the PRC telecommunications industry or any future industry restructuring may materially and adversely affect our financial condition, results of operations and growth prospects” under Item 3.

In addition, the Measures for the Security Review of Network Products and Services (Provisional) became effective on June 1, 2017. According to Measures for the Security Review of Network Products and Services (Provisional), the procurement of network products and services must go through a cybersecurity review if such procurement is made for network and information systems that involve national security concern. Relevant government authorities responsible for the protection of critical information infrastructure facilities will decide on whether such procurement of network products and services would threat national security. Since we are one of the leading telecommunications service providers in China, our products and service may be supplied to network and information systems that involve national security concern. As such, we may be requested to provide information for such cybersecurity review. Since the implementation of the Measures for the Security Review of Network Products and Services (Provisional) is still at an early stage, we currently cannot estimate their impact on and implications for our operation.

Furthermore, personal privacy, information security, and data protection are increasingly significant issues in China and other jurisdictions in which we areoperate. In China, the regulatory framework governing the collection, processing, storage and use of business information and personal data is rapidly evolving. For example, in addition to the Cybersecurity Law, the PRC Government also subject to lawspublished Information Security Technology — Personal Information Security Specification in 2018, setting forth detailed guidelines on the collection, utilization and regulationsretention of personal information and privacy protection, and Identification Methods for Illegal Collection and Use of Personal Information by Apps in relation to cybersecurity2019, stipulating standards for determining illegal acts of collecting and using personal information through mobile applications. In addition, regulators in other jurisdictions in which we operate where regulators are also increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This increased scrutiny may result in new interpretations of existing laws and newdata as well. These laws and regulations thereby further impactingcould significantly increase our business.cost of compliance and associated risk.

In response to the evolving cybersecurity laws and regulations, we have employed risk management and internal control systems to safeguard us against cyber-attacks and to comply with laws and regulations related to cybersecurity. We have adopted various measures, including, among other things, (i) continuously strengthening our data security capabilities, such as improving our data encryption, protection of critical information infrastructure and security of supply chain of the information technology products and services; (ii) establishing our data protection compliance policies and guidelines, including training on crisis management and compliance of cybersecurity laws and regulations; (ii)(iii) self-examining potential risks and weakness of our data system and updating our private policy; (iii)(iv) enhancing our real-time monitoring and alarm reporting system and implementing an emergency action plan to allow us to act responsively and minimize our losses in the event of an emergency; and (iv) continuing(v) continuously improving our compliance efforts through enhanced sharing of relevant knowledge internally and externally.

We strive to monitor and comply with all applicable laws, regulations, policies and legal obligations relating to cybersecurity. As of April 16, 2019,15, 2020, we have not been subject to any material cyber-attacks or incidents, individually or in the aggregate, that had or would expected to have a material adverse effect on our business and operations, nor had we been involved in any legal proceedings or regulatory investigations related thereto. However, as the regulatory landscape of cybersecurity is subject to substantial uncertainty, we cannot assure you that we will always be in compliance with laws and regulations related to cybersecurity or we will not be held liable for cyber-attacks that committed against us.See “D. Risk Factors — We face risks associated with our Internet-related services” under Item 3.

Telecommunications Regulations

On September 25, 2000, the State Council promulgated the Telecommunications Regulations of the People’s Republic of China, which came into effect on the same date. All telecommunications activities and related activities within China are subject to the Telecommunications Regulations, which were amended in accordance with the Decision of the State Council on Amending Certain Administrative Regulations on February 6, 2016.

According to the PRC Government, its administration and regulation of the Chinese telecommunications industry is based on the principles of the separation of governmental regulation from enterprise management, the elimination of monopolistic behavior, the encouragement of competition and the promotion of the development of the Chinese telecommunications industry, while also taking into account the principles of openness, equality and fairness. The Telecommunications Regulations regulate all major aspects of the telecommunications industry, including licensing, interconnection, tariffs, resources, services, security, facility construction and access to networks.

Licensing

The PRC Government licenses telecommunications businesses in accordance with their classification. Telecommunications businesses are currently classified into two broad categories of basic services and value-added services. An appendix to the Telecommunications Regulations divides each of the two categories into furthersub-categories. On December 28, 2015, theThe MIIT promulgated the Telecommunications Service Catalogue (2015 edition), or the 2015 Catalogue, which took effect on March 1, 2016.2016 and was amended in June 2019. According to the amended 2015 Catalogue:

On March 1, 2009, the MIIT promulgated the Measures on the Administration of Telecommunications Business Licenses, which took effect on April 10, 2009 and superseded the previous measures promulgated by the former Ministry of Information Industry on December 26, 2001.

The measures govern the application for, approval of and regulation of telecommunications business licenses in China. The operation of any basic telecommunications business is subject to the MIIT’s approval and grant of License for Operation of Basic Telecommunications Businesses. The operation of any value-added business in two or more provinces, autonomous regions or municipalities is subject to the MIIT’s approval and grant of License for Inter-Provincial Operation of Value-Added Telecommunications Businesses. The operation of value-added businesses within a single province, autonomous region or municipality is subject to the approval of the telecommunications authority of the relevant province, autonomous region or municipality in China and the grant of the License for Operation of Value-Added Telecommunications Businesses. The measures, among other things, lowered the minimum amount of registered capital required for an applicant to enter the basic telecommunications business in China.

After the PRC’s accession to the WTO, on December 11, 2001, the State Council promulgated the Administrative Regulations on Telecommunications Companies with Foreign Investments, which took effect on January 1, 2002, and were amended in accordance with the Decision of the State Council on Amending Certain Administrative Regulations on February 6, 2016. Those commitments include the gradual reduction of restrictions on foreign ownership in telecommunications enterprises in China and thestep-by-stepopening-up of the Chinese telecommunications market to foreign enterprises. In recent years, China gradually lifted restrictions for foreign investors in telecommunications enterprises in China and fulfilled its commitment to open up the Chinese telecommunications market. However, the following restrictions on investments in mobile, value-added telecommunications and fixed-line services remain:

Spectrum and Network Number Resources

The MIIT is responsible for the management of the wireless radio frequency spectrum and the allocation of frequencies within the spectrum. The frequency assigned to a telecommunications operator may not be leased or transferred without the MIIT’s approval. In June 2017, the NDRC and the MOF jointly announced new frequency usage fees: (i) for the nationwide frequency bands, an annual rate of RMB16 million per MHz is charged for frequency bands below 960MHz, an annual rate of RMB14 million per MHz is charged for frequency bands between 960MHz and 2,300MHz,2300MHz, and an annual rate of RMB8 million per MHz is charged for frequency bands above 2,300MHz;2300MHz; (ii) for the frequency bands used in each province, an annual rate of RMB1.6 million per MHz is charged for frequency bands below 960MHz, an annual rate of RMB1.4 million per MHz is charged for frequency bands between 960MHz and 2,300MHz,2300MHz, and an annual rate of RMB0.8 million per MHz is charged for frequency bands above 2,300MHz;2300MHz; (iii) for the frequency bands used in each city, an annual rate of RMB160,000 per MHz is charged for frequency bands below 960MHz, an annual rate of RMB140,000 per MHz is charged for frequency bands between 960MHz and 2,300MHz,2300MHz, and an annual rate of RMB80,000 per MHz is charged for frequency bands above 2,300MHz.2300MHz. In April 2018, the NDRC and the MOF jointly announced a reduction in frequency usage fees for frequency bands above 3000MHz: (i) for the nationwide frequency bands, the annual rate charged for frequency bands between 3000MHz and 4000MHz is reduced from RMB8 million to RMB5 million per MHz, the annual rate charged for frequency bands between 4000MHz and 6000MHz is reduced from RMB8 million to RMB3 million per MHz, and the annual rate charged for frequency bands above 6000MHz is reduced from RMB8 million to RMB0.5 million per MHz; and (ii) for the frequency bands used in each province, autonomous region and municipality, the annual rate charged for frequency bands between 3000MHz and 4000MHz is reduced from RMB0.8 million to RMB0.5 million per MHz. The NDRC and the MOF also announced that, for the first three years after grant of the permit to use the 5G frequency band, there will be no charge of frequency usage fee; from the fourth year to the sixth year, the frequency usage fee will be charged at 25%, 50% and 75% of the standard frequency usage fee prescribed by relevant authority; and from the seventh year onwards, the frequency usage fee will be charged at 100% of the standard frequency usage fee prescribed by relevant authority. For the public frequency bands with a limited scope of usage (such as limited to indoor usage), the frequency usage fee will be charged at 30% of the standard frequency usage fee prescribed by relevant authority.

The MIIT is also responsible for the administration of China’s telecommunications network number resources. The telecommunications network number resources are owned by the State, which shall charge fees for the use of such resources. Application for the use of number resources by any telecommunications operator is subject to the approval of the MIIT or the relevant provincial telecommunications authority and the payment of certain usage fees. The measures also provide for the procedures for the application, usage and record-keeping for the telecommunications operators’ use of number resources.

Tariff Setting

Prior to January 2014, the levels and categories of telecommunications tariffs were subject to regulation by various government authorities, including the MIIT, the NDRC, and, at the local level, the relevant provincial Telecommunications Administration Bureaus and price regulatory authorities.

In January 2014, the State Council announced the removal of the MIIT’s approval requirement on the tariff standard of telecommunications services. In addition, pursuant to the amendments to the Telecommunications Regulations dated August 15, 2014, the telecommunications tariffs shall be set by the telecommunications operators based on costs and market conditions.

In May 2015,the PRC government introducedthe PRC Government’s policy of increasing network speed and reducing tariff. In response to such policy, we have since then offered discounts to our tariff plans. In addition, in October 2015, we launched our mobile data carry-over programs, which allow subscribers of our data plans withpre-determined monthly data limit to carry over their unused data to the following month with no extra charge. Furthermore, in light of the national policy of achieving coordinated development of Beijing Municipality, Tianjin Municipality and Hebei Province issued in April 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. On March 6,Since May 2017, we announced that we plan to substantially reducereduced Internet private line access tariff for small and medium enterprises customers and international long-distance call tariff. In addition, in September 2017, we ceased charging mobile handset subscribers domestic long-distance and roaming fee. In response to the guidance to further implement the “speed upgrade and tariff reduction” policy, we (i) have reduced the per unit price of mobile data and fixed-line broadband for more than 30% in 2018, (ii) reduced the per unit price of Internet broadband services for small andmiddle-sized business for more than 10% in 2018, (iii) greatly reduced international mobile data roaming fees, and (iv) ceased charging domestic mobile data roaming fees since July 2018. On August 23, 2018, the MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Further Regulating the Marketing Behavior of Telecommunications Tariff, effective from August 23, 2018. This Notice encourages the telecommunications operators to offer tiered pricing scheme, which offers deeper discount to tariff plans with increased data usage by users. Pursuant to this Notice, telecommunication operators should strive to simplify their pricing structures, offer corresponding service plans for each fee item if package plans are offered, specify the structure of fees, fee items and fee standards, and fulfill operators’ obligations to remind its customers of the restrictive conditions, validity periods, charging principle of the plans, among other noteworthy matters, when promoting such plans. In addition, the operators shall ensure customers with the same trading conditions afforded identical rights to choose their tariff plan. In March 2019, the PRC Government published certain guidance relatinggovernment, in its 2019 work report, introduced further “speed upgrade and tariff reduction” measures, including directives to (i) further reduce the broadband tariffs for small and medium enterprises by 15% on average and the tariffs for handset data by no less than 20% on average, and (ii) implement mobile number portability programs, which allow customers to switch mobile carriers while retaining their numbers, in Mainland China by the end of 2019. In 2019, we continued to implement the “speed upgrade and tariff reduction inreduction” policy and launched more preferential tariff plans. For example, we significantly reduced the Government Work Report made in the second sessionunit price of 13th National People’s Congress of the PRC, and set the specific goal of further decreasing the averageour mobile data tariff by at least 20%service and reducing the average broadband feestariffs for small andmedium-sized business by 15% medium enterprises in 2019.

As we may have to devote substantial resources, incur significant expenses and make strategic decisions on or adjustment of operation strategies in order to meet with these requirements, our compliance with the “speed upgrade and tariff reduction” policy may have an adverse effect on our financial condition, results of operations and growth prospects. See “D. Risk Factors — Risks Relating to Our Business — Adjustments in our charges for telecommunications services and products may have a material adverse effect on our financial condition and results of operations” under Item 3.

The following table sets forth selected interconnection revenue-sharing and settlement arrangements for local calls:

The following table sets forth selected current main interconnection revenue-sharing and settlement arrangements for public switched telephone network 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 revenue-sharing and settlement arrangements for VoIP long-distance calls:

Quality of Services

Under the Telecommunications Regulations, the MIIT and the relevant provincial telecommunications administrations are responsible for supervising and monitoring the quality of services provided by telecommunications operators in China. Under the Telecommunications Regulations, customers of telecommunications operators have the right to submit their complaints to the MIIT and the relevant provincial telecommunications administrations or other relevant government authorities. In addition, the MIIT, together with other governmental authorities, has taken measures to prompt telecommunications operators to screen indecent contents and prevent telecommunications fraud carried through their networks.

Convergence Policy of Telecom, Broadcasting and Internet Networks

In January 2010, the PRC Government announced its decision to accelerate the advancement of convergence of television broadcast, telecommunications 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. In 2015, the PRC Government promulgated the Notice on Issuance of the Plan to Promote Convergence of Telecom, Broadcasting and Internet Networks by the General Office of the State Council, and started to fully implement such policyacross-the-board. The PRC Government may amend relevant policies or promulgate new regulations corresponding to the implementation of the three-network convergence policy in the future.

Others

As a company with substantially all of our operations in China, we, along with our ultimate controlling shareholder, Unicom Group, are subject to various regulations of the PRC Government in addition to those regulating telecommunications industry. PRC regulatory authorities, such as the State Bureau of Taxation, National Audit Office and SAIC,State Administration for Market Regulation, exercise extensive oversight over various aspects of our businesses and conduct various regular inspections, examinations and/or audits on us and Unicom Group. As required by the relevant PRC laws and regulations, Unicom Group, as one of the key State-owned enterprises under the direct supervision of the SASAC, is also subject to routine audits by the National Audit Office, or the NAO as well as other PRC regulatory authorities.

In addition, the SASAC has an indirect influence over us as our ultimate controlling shareholder, Unicom Group, is under the direct supervision of the SASAC. In particular, the SASAC may designate certain nominees and request Unicom Group to propose the appointment of such nominees as our directors and senior management. The SASAC may also request Unicom Group to remove our directors and senior management in accordance with relevant procedures provided by applicable law and our articles of association.

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

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

We are incorporated in Hong Kong and as of April 16, 2019,15, 2020, we were (i) 53.5% owned by Unicom BVI, which was 17.9% owned by Unicom Group and 82.1% owned by the A Share Company, which in turn was 36.7% owned by Unicom Group, (ii) 26.4% owned by Unicom Group BVI, which in turn was 100% owned by Unicom Group, and (iii) 20.1% owned by public shareholders. See “— A. History and Development of the Company” above. Set forth below are details of our significant subsidiaries.

The table below sets forth revenue from our major services and their respective percentage of our total revenue in 2016, 2017, 2018 and 2018.2019.

Our revenue primarily consists of the following: