UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM20-F

OR

For the fiscal year ended December 31, 20192020

OR

OR

Date of event requiring this shell company report

For the transition period from            to            

Commission file number1-31517

中国电信股份有限公司

(Exact Name of Registrant as Specified in Its Charter)

China Telecom Corporation Limited

(Translation of Registrant’s Name into English)

People’s Republic of China

(Jurisdiction of Incorporation or Organization)

31 Jinrong Street, Xicheng District

Beijing, People’s Republic of China 100033

(Address of Principal Executive Offices)

Ms. Wong Yuk Har, Rebecca

China Telecom Corporation Limited

28/F, Everbright Centre

108 Gloucester Road

Wanchai, Hong Kong

Email:rebecca.wong@chinatelecom-h.com

Telephone: (+852) 2582 5819

Fax: (+852) 2157 0010

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

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

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

None

(Title of Class)

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

None

(Title of Class)

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

As of December 31, 2019,2020, 67,054,958,321 domestic shares and 13,877,410,000 H shares, par value RMB1.00 per share, were issued and outstanding. H shares are ordinary shares of the Company listed on The Stock Exchange of Hong Kong Limited.

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

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

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

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

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

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

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

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

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

U.S. GAAP  ☐

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

Other  ☐

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

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

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

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

CHINA TELECOM CORPORATION LIMITED

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

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

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

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

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

CERTAIN DEFINITIONS AND CONVENTIONS

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

PART I

Not applicable.

Not applicable.

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

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

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Risks Relating to Our Business

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

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

In mobile telecommunications services, China Mobile, China Unicom and China UnicomBroadcasting Network Corporation Ltd, or China Broadcasting Network, are our top twothree competitors. As of April 2020,2021, each of China Unicom, China Mobile and us provides 4G services nationwide and has officially launched 5G commercial services in the PRC.PRC for more than one year. In June 2019, China Broadcasting Network Corporation Ltd, or China Broadcasting Network was granted the 5G permit by the MIIT. In May 2020, China Broadcasting Network entered into a collaborative framework agreement in relation to 5G co-construction and sharing with China Mobile Communications Group Co., Ltd. (formerly known as China Mobile Communications Corporation) (“China Mobile Group”). In September 2020, China Broadcasting Network together with partners which include, among others, State Grid Information & Telecommunication Technology Group Co., Ltd. (国网信息通信产业集团有限公司) and Hangzhou Alibaba Venture Capital Management Co., Ltd. (杭州阿里巴巴创业投资管理有限公司) established China Broadcasting Network Co., Ltd to provide 5G services in partnership with China Mobile and it is also expected to offer 4G services in the future. Furthermore, in January 2021, China Mobile Communication Co., Ltd., a wholly-owned subsidiary of China Mobile, on behalf of its 31 provincial subsidiaries, entered into a series of specific collaboration agreements with China Broadcasting Network, including (i) the 5G network co-construction and sharing collaboration agreement; (ii) the 5G network maintenance collaboration agreement; (iii) the market collaboration agreement; and (iv) the network usage fee settlement agreement. Our competitors and we have been rolling out 5G tariff plans to attract customers, and some of the plans offered by our competitors may be more attractive to customers than ours. In fixed-line voice and broadband services, we primarily compete against China Unicom, China Mobile and China Broadcasting Network. While we strive to provide competitive mobile and fixed-line telecommunications services to meet our subscribers’ evolving needs, we cannot assure you that: (i) our mobile and fixed-line telecommunications services will deliver the quality and levels of services currently anticipated; (ii) we will be able to provide all planned services or we will be able to provide such services on schedule; (iii) there will be sufficient demand for our mobile and fixed-line telecommunications services for us to deliver such services profitably; (iv) our competitors’ services will not be more popular among potential subscribers; or (v) we will not encounter unexpected technological difficulties in developing 5Gour Industrial Digitalization business and future generations of mobile and fixed-line services. The failure of any ofAny adverse developments in these possible developments to occurrespects could impede our growth, which might have a material adverse effect on our business, financial condition and results of operations.

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

We also face increasing competition from other competitors outside the telecommunications industry, in particular, from Internet services providers and mobile software and application developers, such asOver-the-Top messaging or voice services providers who offer contents and services on the Internet without their proprietary telecommunications network infrastructure. These competitors are competing with us in information and application or voice services. During the past few years, some of our traditional revenue streams, such as our voice services or short message services, or SMS have experienced negative growth, primarily due to the alternative means of communication offered byOver-the-Top messaging becoming increasingly popular among the subscribers. Though the increasing popularity ofOver-the-Top messaging has generally contributed to the increase in our Internet data traffic and Internet services revenues, we cannot assure you that our Internet data traffic and Internet services revenue will continue to increase in the future or such increase could fully offset the negative effect of theseOver-the-Top services on our voice services or SMS. In addition, in the field of Industrial Digitalization, we compete with telecommunications operators, Internet companies, software companies, equipment manufacturers, etc. Our cloud services and Internet data center (the “IDC”) business compete with domestic and international cloud service providers and IDC operators, respectively. Some of our competitors may adopt aggressive pricing policies. As a result, we may suffer from pricing pressure that would adversely affect our ability to generate revenues. Some of these competitors may also provide our target customers with additional benefits, including bundled services, and may do so in a manner that is more attractive to our potential customers. We expect that competition from competitors outside the telecommunications industry will intensify and the strategic cooperation between these competitors and telecommunications operators may reshape the competitive landscape of the telecommunications industry in which we operate. Though we strive to maintainstrengthen our competitiveness through comprehensively implementing our comprehensive transformation“Cloudification and upgradesDigital Transformation” strategy, we may encounter difficulties and challenges in addressing changing consumer needs and responding to the evolving competitive landscape.

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

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

In June 2019, the MIIT granted the 5G permit to China Telecom Group, China Mobile Communications Group, Co., Ltd. (formerly known as China Mobile Communications Corporation) (“China Mobile Group”), China United Network Communications Group Company Limited (formerly known as China United Telecommunications Corporation) (“Unicom Group”) and China Broadcasting Network. The MIIT has allocated the 3400-3500MHz3400MHz-3500MHz frequency bands to China Telecom Group, the 2515MHz-2675MHz and 4800MHz-4900MHz frequency bands to China Mobile Group, the 3500-3600MHz3500MHz-3600MHz frequency bands to Unicom Group, respectively, for nationwide 5G programs, and the 4900MHz-5000MHz to China Broadcasting Network for 5G trials. In February 2020, the MIIT approved China Telecom Group, Unicom Group and China Broadcasting Network to share the 3300-3400MHz3300MHz-3400MHz spectrum to build indoor 5G. In March 2020, the MIIT repurposed the use plan for 700MHz frequency bands to mobile communications. We have been authorized by China Telecom Group to develop 5G business nationwide.

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

With the gradual maturity of conditions for 5G commercialization, onOn October 31, 2019, we officially launched 5G commercial services in 50 cities nationwide based on market-oriented judgment, and created a membership-based innovative service model ofnationwide. In 2020, leveraging “5G + Privileges + Applications” for individualse-Surfing Cloud”, we provided our subscribers with an excellent network experience as well as differentiated applications and 5G service combining “5G + Gigabit Broadband + Smart Family Applications” for households.services. As of MarchDecember 31, 2020, the number of our 5G base stations in use exceeded 380,000, primarily achieving contiguous coverage in outdoor areas of all prefecture-level or above cities and some developed counties nationwide and indoor coverage of key buildings; the total number of our mobile subscribers reached 351 million, representing a net addition of 15.45 million and expanding our market share to 22.0%; the number of 5G package subscribers wasreached 86.50 million with a penetration rate of 24.6%. As of March 31, 2021, the number of 5G package subscribers further increased to approximately 16.6111.23 million. For more details of our 5G operations, see “Item 4. Information on the Company—B. Business Overview”.

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

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

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

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

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

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

China Telecom Group, a state-owned enterprise owned approximately 70.89% of our outstandingissued shares as of April 23, 2020.2021. Accordingly, subject to our Articles of Association and applicable laws and regulations, China Telecom Group, as our controlling shareholder, will continue to be able to exercise significant influence over our management and policies by:

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

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

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

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

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

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

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

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

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

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

The proposed A share offering, if completed, will result in dilution of the ownership interest of our existing shareholders, and we may not be able to realize the intended benefits of the offering proceeds and there are risks relating to listing on multiple stock exchanges. There is no assurance that the proposed A share offering will proceed and complete successfully.

We currently plan to raise additional equity capital by publicly offering A shares, the number of which will be no more than 12,093,342,392 shares (namely no more than 13% of our total issued share capital upon the A share offering, without taking into account the exercise of the over-allotment option). Please see “Item 4. Information on the Company—A. History and Development of the Company—Proposed A Share Offering” for more information. Such offering, like any other issuance of equity securities, will result in dilution to our shareholders and may cause the market price of our securities to decline. In addition, if we successfully complete the A share offering and list our A shares on the Shanghai Stock Exchange, all of our shareholders (including the holders of newly issued A shares) would be entitled pro rata to our undistributed profits accumulated before the completion of our A share listing, which will dilute the interest of our existing shareholders.

We plan to apply most of the proceeds from the proposed A share offering to projects including the 5G industrial Internet construction project, the cloud-network integration new information infrastructure project, and the research and development project of sci-tech innovation. Our research and analysis on the necessity and feasibility of these projects are mainly based on current industry, technology, market and other factors, many of which are not within our control. If there are major changes in subsequent industry standards, technology trends, and market demand, the ultimate benefits generated from these projects may not meet our expectations, which will adversely affect our operating results.

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Upon the completion of the proposed A share offering, our shares will be listed on multiple stock exchanges at the same time. Due to the differences in domestic and overseas regulatory rules, we need to comply with different sets of laws and regulations with respect to governance structure, compliant operation, information disclosure, internal control, investor protection, etc. In particular, we need to comply with the listing rules of all relevant regulatory authorities. This poses greater challenges to our compliant operation and investor relations management. In addition, we may incur additional costs and resources in continuously complying with all sets of securities regulatory regimes in multiple jurisdictions. Upon the listing of our A shares, holders of our A shares and H shares (including our ADSs) will be treated as different classes of shareholders for the purpose of voting on certain specific matters (such as increase or decrease of the number of class shares, cancellation or reduction of the rights of class shares, etc.). The convening and voting results of A share class shareholders meetings may have impact on our H share class shareholders (including our ADS holders). Furthermore, domestic and overseas investors may have different views on the valuation of us, and the factors that affect stock prices and their sensitivity to influencing factors may also be different among markets. These may result in significant differences in our stock prices in different stock exchanges. Systematic risks in domestic capital markets and fluctuations in domestic stock prices may adversely affect our ADS and H share investors.

The proposed A share offering is subject to approvals from China Securities Regulatory Commission, or CSRC, and other relevant regulatory authorities and may or may not proceed. The completion of such offering is also subject to market condition. Therefore, there is no assurance that the offering will complete as currently planned or at all.

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

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

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

Transactions in and holdings of our ADSs and H shares by U.S. persons beyond specified dates are prohibited, and the continued listing of and trading in our ADSs are subject to significant uncertainty.

- 7 -On November 12, 2020, the then President of the United States signed Executive Order 13959 (as subsequently amended on January 13, 2021, the “Executive Order”) to (i) prohibit (the “Prohibitions”) any transaction by any U.S. person, subject to certain divestiture and other exemptions, in publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities, of certain Chinese companies (each, a “Restricted Company”), (ii) prohibit possession of the foregoing securities by a U.S. person after November 11, 2021 and (iii) authorize the United States Secretary of the Treasury to publicly list an entity as a Restricted Company, with respect to which the Prohibitions shall take effect on the date that is 60 days after such listing. The United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) maintains a list of companies identified as a Restricted Company (the “Restricted List”) and, on January 8, 2021, added the Company to the “Issuer Name” column of the Restricted List. According to guidance issued by OFAC (available at https://home.treasury.gov/system/files/126/ccmc_gl1a_01272021_1.pdf), the Prohibitions with respect to the Company took effect on March 9, 2021, 60 days after the Company was added to the “Issuer Name” column of the Restricted List.

-7-

On December 31, 2020, the New York Stock Exchange, or the NYSE, announced that it had determined to commence proceedings to delist our ADSs on the basis that we were no longer suitable for listing in light of the Executive Order. On January 4, 2021, the NYSE announced that, in light of further consultation with relevant regulatory authorities, the NYSE no longer intended to move forward with the delisting action in relation to our ADSs. On January 6, 2021, the NYSE announced that it had determined (the “Determination”) to re-commence proceedings to delist our ADSs to comply with the Executive Order and suspended trading in our ADSs on January 11, 2021.

Separately, the Depository Trust & Clearing Corporation’s National Securities Clearing Corporation (“NSCC”) suspended trade capture activities through its Universal Trade Capture (“UTC”) and Continuous Net Settlement (“CNS”) systems for our ADSs after trading ended on January 8, 2021. As a result, our ADSs can no longer be traded in any U.S. market that relies on NSCC’s UTC and CNS systems, including the over-the-counter (“OTC”) markets. On January 20, 2021, we filed with the NYSE a written request for a review of the Determination by a Committee of the Board of Directors of the NYSE (the “Committee”). The Company requested that the Committee reverse the Determination and stay the trading suspension of the ADSs pending review of the Determination. However, there is no assurance that such request will be successful and that the Committee will reverse its Determination.

If our ADSs were delisted from the NYSE, in light of the evolving situation described above, the organizers of OTC markets in the U.S. would also likely prohibit, or be directed to prohibit, the trading of our ADSs on such markets. Subject to the terms of the deposit agreement entered into among the Company, the Bank of New York Mellon, and holders and beneficial owners of ADSs from time to time, holders of our ADSs may convert the ADSs into our H shares listed on the Hong Kong Stock Exchange but will incur costs in order to do so. See “Item 12. Description of Securities Other than Equity Securities” for further information. More importantly, pursuant to the Executive Order and the latest OFAC guidance, U.S. persons are prohibited from purchasing or selling our ADSs or H shares (subject to certain divestiture and other exemptions) beyond March 9, 2021 and holding our ADSs or H shares beyond January 8, 2022, 365 days after the Company was added to the “Issuer Name” column of the Restricted List. Furthermore, the foregoing events or any further development thereof may adversely affect investor sentiment towards our Company, regardless of our actual operating performance. As a result, the value and liquidity of our ADSs and H shares may significantly decrease.

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

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

For example, certain telecommunications equipment manufacturers were added by the Bureau of Industry and Security of the U.S. Department of Commerce to the Entity List in May 2019, which resulted in the imposition of additional licensing requirements on the export,re-export and transfer of goods, services and technology to such manufacturers. While the U.S. Department of Commerce issued a temporary general license partially restoring the said licensing requirements in limited types of transactions and extended the expiration dates of the temporary license for multiple times, there is no guarantee that the U.S. Department of Commerce will further extend the expiration date of the temporary license or fully withdraw the licensing requirements. Such disruptions could prevent those affected manufacturersour suppliers from delivering equipment and services to us in accordance with the agreed terms of supply, which in turn could negatively affect our business operations. We may not be able to find suitable alternative suppliers for the affected equipment or services 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 services and difficulties in timely improving our services that rely on those suppliers for upgrading our networks and related software and applications.

Furthermore, the significant disruptions in the supply chain of semiconductor and telecommunications industry may indirectly impact the growth of our Internet services and information and application services. For example, the sanctions against certain mobile phone manufacturers may adversely affect the availability of quality 5G smart phones for users who may wish to upgrade their handsets, which could indirectly adversely affect our 5G business as such users potentially could have been our 5G package subscribers.

Any of thesethe above and other consequences could materially adversely affect our business, results of operations, financial condition and prospectprospects and cause a significant volatility in and a decline in our share price.

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

The World Health Organization declared the outbreak of the COVID-19 a pandemic on March 13, 2020. Since then, confirmed and death cases of the COVID-19 pandemic have continued to grow globally. The COVID-19 pandemic has caused significant economic and financial impact around the world. AtWhile various COVID-19 vaccine products have been developed and distributed, at this time, we are still not able to estimate the longer-term effects that the COVID-19 pandemic could have on our business. The extent to which theCOVID-19 pandemic impacts our business, financial condition, results of operations will depend on future developments which are highlystill uncertain, and cannot be predicted, including the specific degreepotential resurgence of severity ofthe COVID-19 pandemic from time to time, the implementation of the vaccination plans by the government, the efficacy and thesafety of vaccine products, and other actions taken or to be taken to restrain or resolve its impact. We are continuing to monitor the spread of the COVID-19 and related risks.

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Due to the outbreak of the COVID-19, the Chinese government implemented domestic temporary control measures fromin late January 2020. Since March 2020, and itwhile the Chinese government has been gradually easing such control measures since March 2020. Despiteon a nationwide basis, stringent control measures have been maintained in provinces or cities where COVID-19 resurged. Although the Chinese government’s many efforts to reviveCOVID-19 pandemic has been primarily controlled in China and China’s economy has gradually recovered, China’s economy still experienced an evidenta slowdown and willmay continue to face new difficulties and challenges due to the spread of the pandemic, increasing risk of imported cases, temporary impossibility of total elimination of the pandemic domestically, and heightened volatility and uncertainties in the global economy.

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

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

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

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

Revenues from our wireline broadband services continued to decline during the past several years. Our revenues from wireline broadband services decreased by 3.2% from RMB76,744 million in 2017 to RMB74,262 million in 2018 and further decreased by 7.9% to RMB68,413 million in 2019. Percentage ofSuch revenues derived from our wireline broadband services out of our total operating revenues also continuedincreased by 5.1% to decrease, from 21.0%RMB71,872 million in 2017 to 19.7% in 2018 and 18.2% in 2019. This is primarily2020. However, due to increasing broadband penetration rates and fierce market competition.

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

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

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

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

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

We enjoy certain preferential tax policies in China; any adverse change of such tax policies in the future may have an adverse effect on our cash flows and results of operations.

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

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

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

On May 22, 2020, the Government Work Report presented in the third plenary session of the 13th National People’s Congress of the PRC further required a 15% reduction in the average tariff of broadband and dedicated line. In 2020, we likewise implemented corresponding measures in due course to meet such policy requirements, including (i) carrying out optical fiber transformation and tariff discounts for our broadband subscribers that are small and medium enterprises, manufacturing enterprises and dedicated line subscribers, and (ii) implementing free speed upgrade for our qualified subscribers.

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On March 5, 2021, the Government Work Report presented in the fourth plenary session of the 13th National People’s Congress of the PRC further required a 10% reduction in the average tariff of broadband and dedicated line for small and medium enterprises. In 2021, we will take corresponding measures to meet such policy requirements, including: (i) carrying out speed upgrade and favorable initiatives for small and medium enterprises subscribers of broadband and dedicated line access to launch speed upgrades, integration upgrades and service upgrades, and upgrading speed free of charge for qualified small and medium enterprises subscribers of broadband and dedicated line access; (ii) providing cloud product discount packages for small and medium enterprises subscribers; (iii) increasing policy awareness for small and medium enterprises subscribers, especially in areas where they are concentrated, such as buildings and parks.

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

In China, the regulatory framework governing the collection, processing, storage and use of business information and personal data is rapidly evolving. For example, the Cyber Security Law of the People’s Republic of China (“Cyber Security Law”) came into force on June 1, 2017, which sets forth the general framework regulating network products, equipment and services, as well as the operation and maintenance of information networks, the protection of personal data, and the supervision and administration of cyber security in China. In 2018,On October 1, 2020, the PRC Government also publishedrevised Information Security Technology—Personal Information Security Specification (信息安全技术个人信息安全规范) which superseded the previous specification published in 2018 was formally implemented, adding provisions with respect to “autonomous selection of multiple business functions”, setting forth detailed guidelines on“convergence and integration of personal information collected for different business purposes”, “usage restrictions of user portraits”, “third-party access management”, “personal information security project”, and “personal information processing activity records”, etc. It also revised “exceptions for authorization and consent”, “personal information subject cancellation accounts”, etc., which provides more privacy protection with respect to the collection, utilization and retention of personal information and privacy protection. On November 28, 2019, the Cyberspace Administration of China, or the CAC, the MIIT, the Ministry of Public Security, and the State Administration for Market Regulation of the PRC jointly formulated the Method for Identifying the Illegal Collection and Use of Personal Information by Applications (App违法违规收集使用个人信息行为认定方法), which explicitly sets out the specific methods of identifying six types of illegal behaviors of collecting and using personal information through applications.information. If we are unable to respond to changing laws, regulations, policies and guidelines related to privacy or cyber security, our business, financial condition, results of operations and prospects may be materially and adversely affected.

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

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

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

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

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

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

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

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

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

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

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Holders of H shares may be subject to PRC taxation.

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

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On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On November 4, 2019, the SEC announced that SEC and PCAOB had dialog with the “Big Four” accounting firms, which emphasized the need for effective and consistent global firm oversight of member firms, including those operating in China. On February 19, 2020, the SEC and the PCAOB further issued a joint statement on continued dialog with “Big Four” accounting firms on audit quality in China, highlighting that PCAOB continues to be prevented from inspecting the audit work and practices of PCAOB-registered audit firms in China on a comparable basis to othernon-U.S. jurisdictions. However, it remains unclear what further actionsOn April 21, 2020, the SEC and PCAOB will take to address the problem.

Inspections of other firms that the PCAOB has conducted outsideissued another joint statement reiterating the PRC have identified deficienciesgreater risks of insufficient disclosures from companies in many emerging markets, including China, compared to those firms’from U.S. domestic companies. In discussing the specific issues related to these risks, the statement again highlighted the PCAOB’s inability to inspect audit procedureswork and quality control procedures, which may be addressed as partpractices of the inspection processaccounting firms in China with respect to improve future audit quality.U.S. reporting companies. The inability of the PCAOB to conduct full inspections of auditors in the PRC makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’sauditor’s audit procedures or quality control procedures as compared to auditors outside the PRC that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular PRC laws, on June 4, 2020, the then U.S. President issued a memorandum ordering the President’s Working Group on Financial Markets, or the PWG, to submit a report to the President within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or the PCAOB on Chinese companies listed on U.S. stock exchanges and their audit firms. On August 6, 2020, the PWG released the report. In particular, with respect to non-compliant jurisdictions that do not grant the PCAOB sufficient access to fulfill its statutory mandate, or NCJs, the PWG recommended that enhanced listing standards be applied to companies from NCJs for seeking initial listing and remaining listed on U.S. stock exchanges. Under the enhanced listing standards, if the PCAOB does not have access to work papers of the principal audit firm located in June 2019, a bipartisan groupNCJ for the audit of lawmakers introduceda U.S.-listed company as a result of governmental restrictions, the Ensuring Quality InformationU.S.-listed company may satisfy this standard by providing a co-audit from an audit firm with comparable resources and Transparencyexperience where the PCAOB determines that it has sufficient access to the firm’s audit work papers and practices to inspect the co-audit. The report recommended a transition period until January 1, 2022 before the new listing standards apply to companies already listed on U.S. stock exchanges. On August 10, 2020, the SEC announced that the SEC chairman had directed the SEC staff to prepare proposals in response to the PWG report, and that the SEC was soliciting public comment and information with respect to the development of these proposals. Furthermore, the Division of Corporation Finance of the SEC issued staff guidance on Disclosure Considerations for Abroad-Based ListingsChina-Based Issuers on November 23, 2020. Any resulting actions, proceedings or new rules from these recommendations could adversely affect the listing and compliance status of China-based issuers listed in the United States, including us, and may have a material and adverse impact on the trading of the securities of such issuers, including our ExchangesADSs.

Furthermore, on December 18, 2020, the United States enacted the Holding Foreign Companies Accountable Act, or the EQUITABLEHFCA Act. The HFCA Act in both houses of the U.S. Congress to requireincludes requirements for the SEC to maintain a list ofidentify issuers for whichwhose audit reports are prepared by auditors that the PCAOB is not ableunable to inspect or investigate an auditor report issuedcompletely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The HFCA Act also requires public companies on this SEC list to certify that they are not owned or controlled by a foreign public accounting firm. The EQUITABLE Act prescribes increasedgovernment (the “Submission Requirement”) and make certain additional disclosure requirementsin their SEC filings (the “Disclosure Requirement”). In addition, if the auditor of a U.S.-listed company is not subject to PCAOB inspections for three consecutive “non-inspection” years after December 18, 2020, the SEC is required to prohibit the securities of these issuers and, beginning in 2025, the delisting from being traded on a U.S. national securities exchanges (includingexchange, such as the New York Stock Exchange) of issuers includedNYSE, on OTC markets in the U.S. or through any other method within the SEC’s listjurisdiction to regulate. The HFCA Act requires the SEC to issue new rules within 90 days of the enactment to implement the HFCA Act. On December 18, 2020, the SEC then-Chairman stated that prior to enactment of the HFCA Act, the SEC staff were finalizing recommendations for proposed rules regarding enhanced listing standards for U.S. securities exchanges and auditor qualifications for the SEC’s consideration and directed the SEC staff to consider providing a single consolidated proposal for the SEC’s consideration on issues related to the PCAOB’s access to audit work papers, exchange listing standards and trading prohibitions due to the substantial overlap between the SEC staff’s proposal in response to the PWG Report’s recommendations and the HFCA Act. On March 24, 2021, the SEC issued the Interim Final Rule on HFCA Act Disclosure dated March 18, 2021 and requested for comments until May 5, 2021 when the Interim Final Rule would become effective. The Interim Final Rule would add Item 16I (Disclosure Regarding Foreign Jurisdictions that Prevent Inspections) in Form 20-F to reflect the Disclosure Requirement, which requires disclosure in a foreign issuer’s annual report regarding the audit arrangements of, and governmental influence on, such foreign issuer. The Interim Final Rule clarified that a foreign issuer that is owned or controlled by a foreign governmental entity is not required to comply with the Submission Requirement. In addition, a foreign issuer will not be required to comply with Item 16I in Form 20-F until the SEC has identified it as having a non-inspection year under a process to be subsequently established by the SEC with appropriate notice. Once identified, a foreign issuer will be required to comply with Item 16I in Form 20-F in its annual report for each fiscal year in which it is identified. The SEC plans to separately address implementation of the trading prohibitions in the HFCA Act in a future notice and comment process. While we understand that there has been dialogue among the CSRC, the SEC and the PCAOB regarding the inspection of PCAOB-registered accounting firms in China, there can be no assurance that our auditor or we will be able to comply with requirements imposed by U.S. regulators.

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As of the date of this annual report, we have not been identified by the SEC as having a non-inspection year. However, we cannot assure you that we will not be identified as such in the future. In addition, as a result of the enactment of the HFCA Act, trading of our ADSs in the United States may be effectively terminated if our auditor is not inspected by the PCAOB for three consecutive years. It is unclear ifThis could also result in our ADSs being delisted from the NYSE. Subject to the terms of the deposit agreement entered into among the Company, the Bank of New York Mellon, and when this proposed legislation would be enacted. Enactmentholders and beneficial owners of this legislation or other effortsADSs from time to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the market pricetime, holders of our ADSs couldmay convert the ADSs into our H shares listed on the Hong Kong Stock Exchange but will incur costs in order to do so. See “Item 12. Description of Securities Other than Equity Securities” for further information. The value and liquidity of our ADSs may therefore be materially and adversely affected.

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We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, our announcements relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

Our Restructuring and Initial Public Offering in 2002

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

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

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

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

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

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

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

Disposal of Chengdu E-store Technology Co., Ltd. and Establishment of Tianyi Capital Holding Co., Ltd.

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

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

Establishment of China Telecom Leasing Corporation Limited

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

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

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

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

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

Delisting Proceedings of our ADSs

-On January 6, 2021, the NYSE, following the reversal of a similar decision announced on December 31, 2020, announced that it had determined to commence delisting proceedings of our ADSs to comply with Executive Order signed by the then President of the United States. On January 20, -

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General Information

Our principal executive offices are located at 31 Jinrong Street, Xicheng District, Beijing, PRC 100033 and our telephone number is(+86-10) 5850-1800.5850-1508. Our website address iswww.chinatelecom-h.com. The information on our website is not a part of this annual report. We have appointed CT Corporation System at 28 Liberty St., New York, New York 10005 as our agent for service of process in the United States.

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

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

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

In December 2018, China Telecom Group, our controlling shareholder, was granted the approval from the MIIT to permit China Telecom Group to utilize the 3400-3500MHz3400MHz-3500MHz spectrum nationwide to conduct fifth generation (5G) mobile communication pilot programs. We have been authorized by China Telecom Group to conduct 5G system scale trial in the PRC.

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

In 2020, technologies such as 5G, cloud and artificial intelligence (AI) integrated to bring about fusion with robust development in digital economy. We built up new information infrastructure with 5G and cloud as the core, and stimulated increasing and diversified customer demand for integrated intelligent information services. In particular, we pioneered 5G standalone (SA) scale commercialization and rolled out customized 5G network to meet the differentiated demands from vertical industries for low latency, wide-area connectivity and network security, among others.

Our Operation Strategy

In 2019, taking advantage2020, we comprehensively implemented the “Cloudification and Digital Transformation” strategy, the essence of which is to be customer oriented while promoting cloud and network convergence based digital upgrade, and innovating digital products and services offering, in order to provide integrated intelligent information service for customers. We established the invaluable opportunities arisingnew development pattern from the digital transformation of the economyan all-round perspective and society, as well as 5G commercialization, we accelerated our expansion of integrated information services, consolidated our capabilities in network, service and operation, while continuing to deepen our reform and innovation. We strived to strengthen our capabilities at all levels, while planning future developments on all fronts.enhance its market competitiveness and corporate vitality. In particular:

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In 2019, we strengthened our aggregation and application of data, with capabilities ofecosystem, continued to expand our corporate boundaries and deepened cooperation of the whole industry chain. Leveraging our core continuing to manifest. By launchingcapabilities and platform, we enriched the next generation BSS3.0 systemecology for industries such as family informatization and through the optimization of our product management as well as development of operation systems, we achieved rapid loadingvertical industries for government and automatic activation of our cloud-network integration services.enterprise customers. We also conducted network constructionstrengthened cooperation and maintenance supported by Big Dataeco-aggregation with capital financing, expanded innovative cooperation in emerging areas, and applied AI technologies to automate management functions.gradually created an industry chain ecology with a larger scope and at a higher level.

We proactively planned householdfocused on meeting the demand for digitalization and intelligentization from family customers and comprehensively upgraded family informatization services. With the “Triple-Gigabit” access service comprising 5G + Fiber Broadband + WiFi6, we enhanced the customer experience of family services createdby promoting convergence of 5G and family services and accelerating the speed upgrades of family broadband and WiFi services. Furthermore, we developed the DICT products and services portfolio for Smart Family product and serviceenriched the portfolio of terminals and forged anend-to-end service system for “5G + Gigabit Broadband + Smart Family Applications”.applications in functional use cases such as home security surveillance, living space coziness, education and entertainment to meet the needs of family life scenes. See “—Information and Application Services” below for further details. Amidst fierce market competition, we continued to expand our broadband subscriber scale with customer loyalty remaining stable. As of December 31, 2019,2020, the number of our wireline broadband subscribers reached 153.1158.5 million, representing a net addition of 7.35.4 million from 145.8153.1 million as of December 31, 2018.2019.

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Voice Services

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

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

Amid the intense market competition in 2019,2020, the number of our mobile subscribers grew from 303.0 million as of December 31, 2018 to 335.6 million as of December 31, 2019.2019 to 351.0 million as of December 31, 2020. The mobile voice usage decreased to 784.5 billion minutes in 2020 from 820.3 billion minutes in 2019 from 827.7 billion minutes in 2018.2019.

Our wireline voice services include local wireline services, domestic long distance wireline services and international Hong Kong, Macau and Taiwan long distance wireline services. The total number of wireline telephone subscribers decreased to 107.9 million as of December 31, 2020 from 110.9 million as of December 31, 2019 from 116.5 million as of December 31, 2018. The total wireline local voice usage decreased from 60.2 billion pulses in 2018 to 55.9 billion pulses in 2019.

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

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

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Wireline Voice Services

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

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

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

Mobile Voice Services

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

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

Internet Services and Information and Application Services

We determine tariffs for these services according to market conditions. In addition, pursuant to the policy requirements of the PRC government regarding network speed upgrade and tariff reduction, in 2019, we rolled out corresponding measures in due course to meet the policy requirements, includingincluding: (i) starting January 1, 2019, we reducedout-of-package data tariff; (ii) we enhanced the promotion of large data traffic packages, enabling more subscribers to enjoy data traffic with lower unit tariff; (iii) we launched discounted traffic packages to serve the needs for specific subscribers; and (iv) starting May 1, 2019, we further reduced the tariff of Internet dedicated line access, and carried out free speed upgrade programs for qualified small and medium enterprise subscribers. In 2020, we likewise implemented corresponding measures in due course to meet such policy requirements, including (i) carrying out optical fiber transformation and tariff discounts for our broadband subscribers that are small and medium enterprises, manufacturing enterprises and dedicated line subscribers, and (ii) implementing free speed upgrade actions for our qualified subscribers.

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

International Roaming

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

As of December 31, 2019,2020, subscribers of our mobile services can roam on mobile networks in more than 200 countries and regions based on international roaming agreements between China Telecom Group and the local operators or roaming service providers. A mobile service subscriber using international roaming services is charged at our roaming usage rates for both incoming and outgoing calls, plus applicable long distance tariffs. We settle roaming revenues and expenses with international telecommunications operators in accordance with roaming agreements between China Telecom Group and the international operators. China Telecom Group has also agreed to our participation in the negotiation of its future international roaming agreements.

Marketing, Sales, Distribution and Customer Services

Marketing, Sales and Distribution

Our marketing strategy is to establish our image as an intelligent full-service telecommunications service provider and utilize our comprehensive services platform and nationwide marketing and distribution network. We have devoted substantial efforts in advertisements to promote recognition of and loyalty to our products and services. In orderFully leveraging the advantages arising from corporate informatization, we expedited digital transformation, leading to respond to market competition as well as attractcontinual improvement of the quality and motivate customers to use our services,efficiency of operations and management.

By pursuing the digital transformation of customer operations, we have also combined certain voice and data products into one integrated service plan to targeted customers to address their telecommunications needs.

We utilized data to enhance ourbuilt customer operation efficiency andteams comprising relevant talents, strengthened data consolidationmodelling for different business scenarios, improved data-driven insight capabilities and analysisutilized artificial intelligence for sales and marketing activities to empower our frontline sales by adopting precision matching products strategies,match customer needs with high precision. By pursuing the digital transformation of sale channel operation, we took advantage of online and fully launchedoffline integration, accelerated the BSS3.0construction of a marketing service system resulting in significant increase inthat embedded full integration of all channels, covering all use cases and engaging the efficiencyfull cooperation of product operation. By optimizing the layout of our sales channels, applying chainstore approach in the operations of our core outlets, and exploring scene marketing for 5G + Smart Family services, we further improved our professional competence and steadily increased the operation efficiency of our sales channels. We formed a customer-oriented product system, continued to optimize product management, development and operation based on customers’ needs.all ecologies.

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Insisting on the launchcustomer-oriented principle, we continued to enhance service quality. In 2020, the evaluation system of 5G“whether service is good or not, subscribers have the final say” was established. We applied indicators such as subscribers satisfaction, product recommendation net score and contact service satisfaction rate, and regarded customer reputation as a service evaluation criterion to promote the improvement of service quality. We established a sound customer perception experience and evaluation mechanism to recognize problems in network, products and services with good users perception. We highlighted the usage scenarios from the customers’ perspective benchmarked against industry leading practices, collected real experience perception from users, responded to customers’ questions to achieve persistent enhancement of 5G perception.subscribers. In respect of household customers,broadband network, we formulatedhave closely tracked and analyzed the problems identified in customer satisfaction surveys, customer complaints, malfunction and complaints throughout the year, and implemented the services standards for Smart Family applicationspolicies and promoted the transformation from installation and maintenance services to the deliveryrectification of integrated solutions for household informatization.problems in different provinces. In respect of governmentmobile network, we have carried out improvement and enterprise customers, we strengthened collaborative servicesupgrading actions for the benchmarking experience of critical scenes in key areas and neighborhoods with weak communication quality to enhance user perception and experience. In respect of cloud-network integrationkey perception, we have promoted standard optimization, perception evaluation and enhancedtargeted improvement of service capabilities. Adhering to the timely installation rateprinciple of “wherever the subscriber is, the service is”, we continued to promote the digital transformation of services and timely repair rateimprove the smart service capabilities. During the year of business dedicated lines2020, we deployed andend-to-end promoted the “home customer service” mode to ensure that customers could process services for WiFi networking.easily and without leaving home.

In 2019,2020, we continued to maintain leading position in the industry in terms of overall user satisfaction and user satisfaction in handset Internet access according to the assessment conducted by the MIIT.

Information Technology System

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

Network System

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

In addition, adhering to the strategic direction of “Cloud central, Network around, Network adaptive to cloud, Cloud and network as one”, we sped up the construction of new infrastructure based on cloud-network integration. In line with the overall “2+4+31+X+O” deployment plan (meaning two super-large data center parks and public cloud nodes in Inner Mongolia and Guizhou serving our global business; data center clusters and cloud resource pools in four key regions including Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macau, Shaanxi-Sichuan-Chongqing; provincial data centers and cloud nodes deployed in 31 provinces; edge data centers and cloud nodes widely distributed and deployed at the level closest to users; and overseas data centers and cloud nodes) we accelerated the construction of e-Surfing Cloud and IDC. Endeavoring to build a wide-coverage, low-latency and intelligent carrying network with cloud/IDC, we promoted the upgrade of gigabit fiber broadband networks in 280 cities, built five major regional reconfigurable optical add-drop multiplexer (ROADM) transmission backbone networks covering 31 provinces across China, and expanded the coverage of our superior optical transport network for government and enterprise customers.

Network Architecture

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

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Low frequency refarming

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

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

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

In September 2019, following market principles, we entered into the 5G Cooperation Agreement with CUCL. Pursuant to the 5G Cooperation Agreement, we will cooperate with CUCL to jointlyco-build one 5G access network nationwide andco-share 5G spectrum resources while the 5G coreand network shall be respectively constructed by each party.resources. Each party will continue to operate its business and branding independently and the subscribers will belong to each party respectively.independently. In respect of settlement under the 5G Cooperation Agreement, based on the principle that parties shall not make a profit from such settlement, we and CUCL will formulate a reasonable and precise settlement arrangement, following fair and equitable market practices, to maximize the benefits of cooperation for both parties and maintain a sustainable cooperation. In 2020, we continued to promote 5G network co-building and co-sharing.We believe that the cooperation is beneficial to the efficient construction of 5G network and the reduction of network construction investment as well as operation and maintenance costs while enhancing efficiency in network and assets operation, which enables us to rapidly create 5G service capability and strengthen network quality and business experience so as to achieve awin-win situation for both parties. As of December 31, 2020, the number of 5G base stations in use exceeded 380,000.

In addition, in 2020, we carried out resources co-sharing with China Unicom of 4G network and collectively activated approximately 170,000 co-shared 4G base stations throughout the year, which further optimized the 4G network coverage, as well as achieved savings in investment and operations and maintenance costs. At the same time, working with industry partners, we have been actively exploring co-building, co-sharing and co-maintenance cooperation in various projects including transmission network, communication equipment rooms, emergency response and international submarine cables.

Equipment procurement

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

Purchases from our five largest suppliers of telecommunications equipment accounted for approximately 28.2%29.2% of our total amount of annual purchases in 2019.2020. Purchases from our single largest supplier of telecommunications equipment accounted for approximately 16.8%15.7% of our total amount of annual purchases in 2019.2020.

Competition

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

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

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We also face increasing competition from other competitors outside the telecommunications industry, in particular, from Internet services providers and mobile software and application developers, such asOver-the-Top messaging or voice services providers who offer contents and services on the Internet without their proprietary telecommunications network infrastructure. These competitors are competing with us in information and application or voice services. In recent years, the PRC Government has taken various initiatives to encourage competition in the telecommunications industry, such as the three-network convergence policy and the policy encouraging private capital to enter the industry, in addition to a series of guidance to such effect. Specifically, in May 2010, the PRC State Council issued Certain Opinion on Encouraging and Guiding the Sound Development of Private Investment, encouraging private investment in industry sectors that are mainly state-owned, such as basic telecommunications services. In June 2012, the MIIT issued Opinions on Encouraging and Guiding Private Investment in the Telecommunications Industry, encouraging private-sector investment in the telecommunications industry. On May 17, 2013, the MIIT issued the Trial Plan of Resale of Mobile Telecommunications Services, pursuant to which the MIIT would grant qualified companies mobile telecommunications resale business approvals on a pilot basis which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators or resell such services to customers. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunications Resale Business (关于移动通信转售业务批发价格调整的指导意见), pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar services of the mobile networks operators. On April 28, 2018, the MIIT issued the Circular on Commercialization of Mobile Telecommunications Resale Business, (关于移动通信转售业务正式商用的通告), pursuant to which the MIIT granted commercial operation approval to the mobile communications resale business, effective from May 1, 2018. As of December 31, 2020, among the 26 mobile virtual network operators who signed pilot agreements with us, 25 of them had been granted commercial resale licenses, and there were a total of approximately 19 million users of mobile virtual network through resale business in cooperation with us. In December 2019, the Opinions of the Central Committee of the Communist Party of China and the State Council on Creating a Better Development Environment to Support the Reform and Development of Private Enterprises proposed to liberalize competitive businesses in key industries and fields such as telecommunications, further introduce market competition mechanisms, and support private enterprises to carry out basic telecommunications operations in the form of equity participation.

On November 11, 2019, the MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Printing and Publishing the Regulations on the Management of Mobile Number Portability Service. The Regulations on the Management of Mobile Number Portability Service (the “Portability Provisions”) became effective on December 1, 2019. The Portability Provisions specify that cellular mobile communication users (excluding the IoT users) within the same local network may apply to change the contracted fundamental service operator by keeping the same mobile numbers and users switched to the network have equal rights under the same conditions. By the end of 2020, we had net inflow of subscribers since the implementation of mobile number portability service in China. In an effort to further encourage private-sector investment in the broadband network construction and business operation, as well as encourage private capital to enter into the telecommunications market through equity investment, the State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013 and Certain Opinion on Promoting Information Consumption and Stimulating Domestic Demand on August 8, 2013, and the MIIT also issued the Informatization Development Plan on September 29, 2013, the Notice on Opening the Broadband Access Market to Private Capital on December 25, 2014 and three more Notices on Further Broadening the Scope of Trial Opening of the Broadband Access Business on September 23, 2015, October 13, 2016 and September 27, 2017, respectively. By the end of 2019,2020, the broadband access market opened up to private capital in 19a majority of provinces in China on a province-wide basis and also in 32many pilot cities.

In addition, our cloud services and IDC business compete with domestic and international cloud service providers and IDC operators, respectively. In the field of Industrial Digitalization, we compete with telecommunications operators, Internet companies, software companies, equipment manufacturers, etc.

As a result, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition. In April 2018, MIIT approved the commercialization of mobile telecommunications resale business, effective from May 2018. By the end of 2019, among the 42 mobile virtual network operators who had been approved by the MIIT to conduct resale business on a pilot basis, 38 of which had been granted commercial operation licenses; and the 25 companies who signed pilot agreements with us had been granted commercial licenses. As of December 31, 2019, there were a total of approximately 19.72 million users of mobile virtual network through resale business that is in cooperation with us.

Trademarks

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

Regulatory and Related Matters

Overview

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

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

On June 1, 2017, the Cyber Security Law came into force. It stipulates relevant rules for personal data security protection, new types of cybercrime and network real name system; it specifies the principle of cyberspace sovereignty, the security obligations of network products and services providers as well as the security obligations of network operators; and it further enhances the protection of personal data, establishes the framework for the protection of critical information infrastructure facilities, and establishes rules regulating cross-border transmission of key data via critical information infrastructure facilities. In addition, it provides for the punishment for foreign organizations and individuals that attack and destroy China’s critical information infrastructure facilities and establishes a system for monitoring, early warning and emergency response. Telecom operators shall comply with the requirements under the Cyber Security Law in respect of network operating security and network information security. In addition, the Measures for theCyber Security Review of Network Products and Services (Provisional)Measures became effective on June 1, 2017. 2020. It repealed the Interim Security Review Measures for Network Products and Services and further refined the relevant provisions therein, requiring critical information infrastructure operators to make declaration when procuring network products and services that affect or may affect national security. It further clarifies the standards and procedures of review and stipulates that if the reviewers fail to be objective and fair, or are unable to undertake the obligation to retain the confidentiality of the information received during the review, the operators or network product and service providers may report this to the Cyber Security Review Office or other relevant departments.

The Cyber Security Law and the Measures for theCyber Security Review of Network Products and Services (Provisional)Measures require procurement of network products and services by operators in key industries and critical information infrastructure facilities that may have national security concerns to go through a cyber security review. Relevant government authorities responsible for the protection of critical information infrastructure facilities will decide on whether such procurement would threat national security pursuant to the review. The security review of telecommunications industry would be organized and conducted by the MIIT. The security review may be initiated by the enterprises or by the relevant government authorities. The security review would focus on the security and controllability of network products and services. Operators of critical information infrastructure facilities use network products or services that have not been subject to the security review or have not passed the security review, would be subject to a fine of no less than one but no more than ten times of the amount of purchase. According to the Cyber Security Law, the CAC has a central role in planning, coordination, supervision, and management of network security measures while the MIIT, the Ministry of Public Security and other relevant authorities are in charge of network security protection, supervision and management within the scope of their respective responsibilities. Several related regulations, including the Measures for the Security Review of Network Products and Services (for Trial Implementation) and the Provisions for the Administration of Internet News Information Services, published by the CAC came into effect on the same day as the Cyber Security Law. The PRC government may amend the relevant regulations or promulgate new regulations to clarify and further implement the Cyber Security Law. Although we expect that the Cyber Security Law will have a positive effect on the overall development of the telecommunications industry and enhance information protection in the PRC, we currently cannot predict the scope of any specific requirements that may be imposed on us and their implications for our operations under the Cyber Security Law and relevant regulations.

On January 1, 2018, the Measures for Monitoring and Management of Public Internet Cyber Security Threat issued by the MIIT came into force. It provided for the definition of public Internet cyber security threats, the relevant governing authorities, working principles and remedial measures in connection with the monitoring and management of public internetInternet cyber security threats. Telecom operators are required to strengthen the monitoring and management of public Internet cyber security threats, notify the governing authorities in a timely manner after discovery of cyber security threats, and provide technical assistance to governing authorities in relation to inquiries into IP address attribution and domain name registration.

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

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

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

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

Tariff Setting

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

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

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

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

On May 9, 2020, the MIIT and the NDRC promulgated the Notice on Cancelling the Notification Mechanism of Telecommunication Services Tariff. Since the promulgation date of such notice, the notification requirements before the implementation of the tariff plan in the Notice on Implementing the Market Based Tariffs for Telecommunications Services will be cancelled. Telecommunications operators are no longer required to notify the MIIT and NDRC of tariff plans across the country or across provinces, autonomous regions and municipalities, or to notify the telecommunications administrations in provinces, autonomous regions and municipalities level and the corresponding pricing authorities of other tariff plans. In addition, telecommunications operators should further improve the telecommunications service tariff publicity system, and publicize all tariff plans available in the public market in the form of a list through manuals or electronic display screens at business premises. The publicity and promotion of tariff plans should be comprehensive, accurate and easy to understand, and the content of the promotion should be consistent with the tariff publicity plan. When formulating a package sales tariff plan, separate tariff plans for different services that involve basic telecommunication needs should be provided at the same time for users to choose independently. For new users converted from our mobile number portability services, telecommunications operators shall ensure these users can independently choose the tariff plan available for sale in the public market.

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

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

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

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

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

Technical Standards

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

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In 2019,2020, we paid approximately RMB100RMB109 million of usage fees for the telecommunications network numbers and approximately RMB1,418RMB1,513 million of frequency usage fees, respectively.

Quality of Service

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

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

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

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

Universal Services

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

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

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State-Owned Assets Supervision

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

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Sharing of Telecommunications Infrastructure

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

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Civil Code

On May 28, 2020, the third session of the 13th National People’s Congress passed the Civil Code of the People’s Republic of China (the “Civil Code”), which was formally implemented on January 1, 2021. The Civil Code, for the first time, codifies the right of privacy as an independent personality right, stipulates a series of specific rules and formulates a framework of fundamental rights and obligations between natural persons and information processors. When conducting businesses, enterprises shall effectively strengthen the awareness of privacy rights of natural persons and personal data protection and strictly adhere to the principles of legality, justification and necessity. Enterprises shall collect and process personal information in strict compliance with the conditions as stipulated by laws and definitive agreements with the data subject concerned, and shall not over collect or process the data. The Civil Code provides principle provisions on the protection of data and online virtual assets. The Company should continue to strengthen the protection of intangible assets such as proprietary data, online virtual assets and intellectual property and enhance the compliance on the usage of such intangible assets.

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, whetherif it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. bynon-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

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You should read the following discussion and analysis in conjunction with our auditedthe consolidated financial statements and our selected financial data,their related notes included in this annual report, in each case included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board. The information included in the following discussion and analysis provides details on the information for the years ended December 31, 20192020 and December 31, 2018.2019. Information related to the year ended December 31, 20172018 has not been included and can be found on the Company’s previously filed annual report on Form20-F for the year ended December 31, 2018.2019.

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

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

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

Critical Accounting Policies

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

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

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

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

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

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

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

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

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

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

For the year ended December 31, 2019, no2020, provision for impairment losses of RMB5,042 million were made against the carrying value of long-lived assets. assets mainly based on the impairment test on the 3G specific mobile network assets (“3G Assets”) on the basis of each individual asset.For the yearyears ended December 31, 2019 and 2018, no provision for impairment losses were made against the carrying value of long-lived assets. For the year ended December 31, 2017, provision for impairment losses of RMB10 million were made against the carrying value of long-lived assets.

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Year Ended December 31, 20192020 Compared to Year Ended December 31, 20182019

Operating Revenues

Our operating revenues decreasedincreased by RMB1,390RMB17,827 million, or 0.4%4.7% from RMB377,124 million in 2018 to RMB375,734 million in 2019.2019 to RMB393,561 million in 2020. This decreaseincrease was primarily the results ofbecause our revenues from voiceInternet services and others decreased,information and application services increased, which was partially offset by the revenue growth of Internet services, information and application services and telecommunications network resource and equipmentdecline in voice services.

Voice Services.Revenues from our voice services decreased by 11.1%9.5% from RMB50,811 million in 2018 to RMB45,146 million in 2019 to RMB40,866 million in 2020, representing 12.0%10.4% of our operating revenues in 2019.2020. Among such revenues, revenues from our wireline voice services decreased by 6.6%13.0% from RMB19,723 million in 2018 to RMB18,425 million in 2019 to RMB16,034 million in 2020 and revenues from our mobile voice services decreased by 14.0%7.1% from RMB31,088 million in 2018 to RMB26,721 million in 2019.2019 to RMB24,832 million in 2020. The decrease in revenue from our voice services was primarily due to the effect of the cannibalization of our mobile Internet services, in combination with alternative means of communication such asOver-the-Top messaging services, as alternative means of communication.services.

Internet Services. Revenues from our Internet services increased by 3.3%5.5% from RMB190,871 million in 2018 to RMB197,244 million in 2019 to RMB208,019 million in 2020, representing 52.5%52.9% of our operating revenues in 2019.2020. This increase was primarily due to our enhanced effortsachievement of a valuable scale expansion in strengthening ecological cooperation, and enhanced differentiationthe mobile subscriber market competitiveness of convergence operation to continuously expandleveraging the subscriber base, driven by mobile Internet traffic.promising start for our 5G consumer services. The number of our mobile subscribers continuecontinued to rise. As of December 31, 2019,2020, the number of our mobile subscribers increased to 335.6351 million, ranking second in Chinese telecommunications industry.representing a net addition of 15.5 million and expanding its market share to 22.0%. The revenuesrevenue attributable to mobile handset Internet access was RMB123,203RMB130,655 million in 2019,2020, representing an increase of 10.8%6.0% from 2018.2019. In addition, the number of our wireline broadband subscribers increased to 158.5 million as of December 31, 2020, representing an increase of approximately 5.4 million, or 3.5%, from 153.1 million as of December 31, 2019, representing an increase of approximately 7.3 million, or 5.0%, from 145.8 million as of December 31, 2018.2019. Due to intensified market competition,our comprehensive promotion of the upgrade of family informatization services, and reshaping of the value of broadband access business, the wireline broadband revenue was RMB71,872 million in 2020, representing an increase of 5.1% from RMB68,413 million in 2019, representing a decrease of 7.9% from RMB74,262 million in 2018.2019.

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Personnel Expenses. Personnel expenses increased by 6.4%3.8% from RMB59,736 million in 2018 to RMB63,567 million in 2019 to RMB65,989 million in 2020, primarily due to theour continued introduction of high-tech talents and increased incentives for high-tech talentsfront-line employees and frontline employees.high performance team, so as to enhance employees’ vitality. Increase in personnel expenses is in line with our transformation towards a sci-tech company in the future. The personnel expenses as a percentage of our operating revenues increased from 15.8%remained stable at 16.8% in 20182020 compared to 16.9% in 2019.

Other Operating Expenses. Our other operating expenses primarily consist of interconnection charges, cost of goods sold, donations and other expenses. Our other operating expenses were RMB29,074 million in 2020, which increased by 4.6% from RMB27,792 million in 2019, which decreased by 26.3% from RMB37,697 million in 2018.2019. The decreaseincrease was primarily due to the decreaseincrease in the costscale of mobile terminals sold, whichsold.

Impairment loss on property, plant and equipment. Following the network evolution and the full coverage of 4G and 5G scale deployment, the data traffic carried by our 3G network was rapidly shrinking and the cash flow from the continual use of 3G Assets is commensurateexpected to be so small and even become negligible. Given we have made a commitment in the year to gradually terminate our use of 3G Assets in the near future, in accordance with the decreased salesrelevant requirements of such goods.IFRS, we conducted an impairment test on the 3G Assets on the basis of each individual asset, and recognized an impairment loss of RMB5,042 million at the end of 2020. The impairment loss on property, plant and equipment as a percentage of our operating revenues was 1.3% in 2020.

Net Finance Costs

Our net finance costs increaseddecreased by 34.4%17.2% from RMB2,708 million in 2018 to RMB3,639 million in 2019.2019 to RMB3,014 million in 2020. This is primarily attributable to interest expense on lease liabilities amounted to RMB1,607 million, which was recognized upon the applicationour implementation of the New Lease Standardlow-cost financing and reduction in 2019, and partially offset by appropriate increasefinancing costs, continuous improvement in the allocationcapability of bond products with favorable costsfunds management, sophisticated management on financing, and continued to improve the capabilitiescompetent control of internal capital centralization, effectively controlling the scale of indebtedness and financing costs, and further enhancing the capital turnover rate and utilization efficiency.by seizing favorable market opportunities.

The net exchange loss was RMB41RMB163 million in 2019,2020, compared to a net exchange gainloss of RMB79RMB41 million in 2018,2019, which was primarily due to fluctuation of the Renminbi exchange rate against the U.S. dollars in 2019.2020. According to the exchange rates published by the People’s Bank of China on December 31, 2019,2020, the exchange rate of Renminbi depreciatedappreciated by 1.6%6.5% against the U.S. dollars from December 28, 2018.31, 2019.

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Our principal source of liquidity is net cash inflow from operating activities, which was RMB112,600RMB132,260 million in 2019,2020, representing an increase of RMB13,302RMB19,660 million from RMB99,298RMB112,600 million of net cash inflow in 2018,2019, primarily because we strengthened the principal portionmanagement of accounts receivable and more subscribers applied the rental expenses paid was classified from operating activities to financing activities, which is a structural adjustment due to the application of the New Lease Standard.pre-paid method.

Net cash outflow used in investing activities decreasedincreased by RMB8,740RMB9,863 million from RMB85,954 million in 2018 to RMB77,214 million in 2019 to RMB87,077 million in 2020, primarily attributable to the maturityincrease in capital expenditure on supporting the development of our certain short-term bank deposit investments.5G and Industrial Digitalization service.

Net cash outflow used in financing activities was RMB42,107 million in 2020 compared to RMB31,288 million in 2019, compared to RMB16,283 million in 2018, primarily because partwe controlled the scale of indebtedness within a reasonable level, resulting in decline in the cash outflowinflow from operating activities was reflected in the financing activities upon the application of the New Lease Standard, and we repaid part of our interest-bearing debt in 2019.loans.

Our working capital (defined as current assets minus current liabilities) was a deficit of RMB187,126 million as of December 31, 2020, representing a decrease of deficit of RMB4,353 million, compared to a deficit of RMB191,479 million as of December 31, 2019, representing an increase of deficit of RMB5,564 million, compared to a deficit of RMB185,915 million as of December 31, 2018. It was mainly due to the recognition of lease liabilities as a result of the application of the New Lease Standard.2019.

We estimate that our current cash and cash equivalents, together with our existing credit facilities from domestic commercial banks, cash flows from operating activities, as well as funds available from short-term and long-term bank borrowings and debt financing, will be sufficient to satisfy our future working capital requirements and capital expenditures through the end of 2020.2021. We have established and maintained high credit ratings in domestic major financing markets, which have facilitated our ability to obtain short-term and long-term credit on favorable terms to meet our financing requirements. As of December 31, 2019,2020, we had unutilized credit facilities of RMB245,847RMB244,326 million with major domestic commercial banks, from which we can draw upon.

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Contractual Obligations and Commercial Commitments

The following table sets forth our operations.contractual obligations as of December 31, 2020: