SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

OR

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

CHINA UNICOM LIMITED

(Exact Name of Registrant as Specified in Its Charter)

N/A		Hong Kong
(Translation of Registrant’s Name Into English)		(Jurisdiction of Incorporation or Organization)

75^th Floor, The Center
99 Queen’s Road Central
Hong Kong
(Address of Principal Executive Offices)

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

Title of Each Class		Name of Each Exchange On Which Registered
Ordinary shares, par value HK$0.10 per share		New York Stock Exchange, Inc.*

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, 2007, 13,634,289,945 ordinary shares were issued and outstanding.

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

     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 o No þ

     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 þ No o

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

     Large Accelerated Filer þ     Accelerated Filer o     Non-Accelerated Filer o

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

     U.S. GAAP o

     International Financial Reporting Standards as issued by the International Accounting Standards Board o   Other þ

     Indicate by check mark which financial statement item the registrant has elected to follow.

     Item 17     o Item 18     þ

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

 

 

TABLE OF CONTENTS

		Page
Note Regarding Forward-looking Statements			iii
Certain Definitions			iv
PART I			1
Item 1. Identity of Directors, Senior Management and Advisers			1
Item 2. Offer Statistics and Expected Timetable			1
Item 3. Key Information			1
Item 4. Information on the Company			21
Item 4A. Unresolved Staff Comments			71
Item 5. Operating and Financial Review and Prospects			71
Item 6. Directors, Senior Management and Employees			101
Item 7. Major Shareholders and Related Party Transactions			110
Item 8. Financial Information			123
Item 9. The Offer and Listing			124
Item 10. Additional Information			125
Item 11. Quantitative and Qualitative Disclosures About Market Risks			136
Item 12. Description of Securities Other than Equity Securities			138
PART II			138
Item 13. Defaults, Dividend Arrearages and Delinquencies			138
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			138
Item 15. Controls and Procedures			138
Item 16A. Audit Committee Financial Expert			139
Item 16B. Code of Ethics			139
Item 16C. Principal Accountant Fees and Services			140
Item 16D. Exemptions from the Listing Standards for Audit Committees			141

		Page
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			141
PART III			141
Item 17. Financial Statements			141
Item 18. Financial Statements			141
Item 19. Exhibits			141
EX-10.42 ASSET TRANSFER AGREEMENT
EX-10.43 SUPPLEMENT AGREEMENT
EX-10.44 CDMA BUSINESS FRAMEWORK AGREEMENT
EX-10.45 JOINT ANNOUNCEMENT DATED JUNE 2, 2008
EX-10.46 ANNOUCEMENT DATED JUNE 2, 2008
EX-12.1 CERTIFICATION OF CEO
EX-12.2 CERTIFICATION OF CFO
EX-13.1 CERTIFICATION OF CEO
EX-13.2 CERTIFICATION OF CFO

Note Regarding Forward-looking Statements

     This annual report for the year ended December 31, 2007 contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. Such forward-looking statements include, without limitation:

	•		our strategy and future plan;
	•		our restructuring plan;
	•		our capital expenditure plan;
	•		our future business condition and financial results;
	•		our ability to retain existing subscribers and attract new subscribers;
	•		our ability to improve our existing services and offer and market new services;
	•		future growth of market demand for our services;
	•		our abilities to optimize, upgrade and expand our networks and increase network efficiency;
	•		our ability to leverage our position as an integrated telecommunications operator and expand into new businesses and new markets;
	•		our ability to upgrade and develop technology applications;
	•		the proposed restructuring of the telecommunications industry of the People’s Republic of China, or the PRC, as announced by the Ministry of Industry and Information, or the MII (which has assumed the regulatory functions of the former Ministry of Information Industry), the National Development and Reform Commission, or NDRC, and the Ministry of Finance of the PRC on May 24, 2008; and
	•		future regulatory and other developments in the Chinese telecommunications industry.

     These forward-looking statements reflect our current views with respect to future events. Actual results may differ materially from information contained in the forward-looking statements as a result of many factors that may be beyond our control, including, without limitation:

	•		any changes in the regulatory regime for the PRC telecommunications industry, including changes in the structure or functions of the primary industry regulator, the MII, or any in the regulatory policies of the MII, the State-owned Assets Supervision and Administration Commission, or SASAC, and other relevant government authorities in the PRC;
	•		the PRC government’s decision in relation to licenses of third generation mobile telecommunications, or 3G;
	•		the results of our ongoing restructuring;

	•		the results of the proposed merger between us and China Netcom Group Corporation (Hong Kong) Limited and the proposed disposal of our CDMA business to China Telecom Corporation Limited;
	•		any changes in the effects of competition on the demand and price of our telecommunications services;
	•		any changes in telecommunications and related technology and applications based on such technology; and
	•		changes in political, economic, legal and social conditions in China including: the PRC government’s policies with respect to economic growth, consolidations or restructuring of and other structural changes in the PRC telecommunications industry, foreign exchange controls, foreign investments in and entry by foreign companies into China’s telecommunications market.

     In addition, our future capital expenditure and development plans are dependent on various factors, including, among others:

	•		the availability of adequate financing on acceptable terms,
	•		the adequate and timely supply of equipment when required, and
	•		the adequacy of currently available spectrum and other government-controlled telecommunications resources or availability of additional spectrum and such other telecommunications resources.

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

Certain Definitions

     As used in this annual report, references to “we”, “us”, “our”, the “Company” and “Unicom” are to China Unicom Limited. Unless the context otherwise requires, these references include all of our subsidiaries. In respect of any time prior to our incorporation, references to “we”, “us”, “our” and “Unicom” are to the telecommunications businesses in which our predecessors were engaged and which were subsequently assumed by us. All references to “Unicom Group” are to China United Telecommunications Corporation, our indirect controlling shareholder. Unless the context otherwise requires, these references include all of Unicom Group’s subsidiaries, including us and our subsidiaries. Please also see “A. History and Development of the Company” under Item 4 for our current shareholding structure. For purposes of this annual report, references to “PRC” and “China” do not include Hong Kong Special Administrative Region, or Hong Kong, Macau Special Administrative Region, or Macau, or Taiwan.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

     Not Applicable.

Item 2. Offer Statistics and Expected Timetable

     Not Applicable.

Item 3. Key Information

A. Selected Financial Data

     The following table presents our selected consolidated income statement data for the years ended December 31, 2003, 2004, 2005, 2006 and 2007 and our selected consolidated balance sheet data as of December 31, 2003, 2004, 2005, 2006 and 2007. The selected consolidated balance sheet data as of December 31, 2006 and 2007 and income statement and cash flow data for the years ended December 31, 2005, 2006 and 2007 have been derived from our audited consolidated financial statements included in this annual report. The selected consolidated balance sheet data as of December 31, 2003, 2004 and 2005 and income statement and cash flow data for the years ended December 31, 2003 and 2004 have been restated to reflect the acquisition of certain cellular businesses and assets, held by the Guizhou branch of Unicom Group, in Guizhou Province, China. Unicom Guizhou was under common control of Unicom Group with our company prior to the acquisition.

     Our financial statements are prepared in accordance with Hong Kong Financial Reporting Standards, or HKFRS, which includes all applicable Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and interpretations issued by the Hong Kong Institute of Certified Public Accountants, or the HKICPA, and the requirements of the Hong Kong Companies Ordinance. Our financial statements also comply with the applicable disclosure provisions of the rules governing the listing of securities on the Stock Exchange of Hong Kong Limited. Financial statements prepared in accordance with HKFRS vary in certain material respects from generally accepted accounting principles in the United States, or US GAAP. Prior to the adoption of HKFRS in 2005, we adopted the purchase method to account for our prior acquisitions from Unicom Group of certain cellular businesses and assets held by Unicom New Century Telecommunications Corporation Limited, or Unicom New Century, Unicom New World Telecommunications Corporation Limited, or Unicom New World, and China Unicom International Limited, or Unicom International, in accordance with the original HK SSAP 27 “Accounting for Group Reconstructions”, or HK SSAP 27, under the previous accounting principles generally accepted in Hong Kong , or HK GAAP, and the requirement of the Hong Kong Companies Ordinance, as the criteria for applying merger accounting under the HK SSAP 27 was not satisfied. The acquisitions of Unicom New Century, Unicom New World and Unicom International became effective on December 31, 2002, December 31, 2003 and in September 2004, respectively, as described in “A. History and Development of the Company” under Item 4. Accordingly, our consolidated income statement and, except as otherwise noted, all other HKFRS financial information for the year 2004 presented in this annual report include the operating results of Unicom New Century and Unicom New World for the year ended December 31, 2004 and the operating results of Unicom International from the effective date of the acquisition to December 31, 2004, but our consolidated income statement and all other HKFRS financial information for the year 2003 presented in this annual report do not include the operating results of Unicom New World and Unicom International for the year ended December 31, 2003. Under the purchase method, our consolidated balance sheet as of December 31, 2003 includes the financial position of Unicom New Century and Unicom New World and our consolidated balance sheet as of December 31, 2004 also includes the financial position of

Unicom International. In contrast, under US GAAP, these acquisitions would have been accounted for as transfers of entities under common control. The financial statements prepared under US GAAP would have been retroactively restated for all periods presented on a combined basis as if these acquisitions had been in effect since inception, whereby related assets and liabilities of the acquired businesses would have been accounted for at historical costs and the results of operations of the acquired businesses would have been included in the consolidated financial statements for the earliest period presented.

     Upon adoption of HKFRS in 2005, we used merger accounting to account for business combination of entities and businesses under common control in accordance with the Accounting Guideline 5 “Merger Accounting For Common Control Combinations”, or AG5, issued by the HKICPA in November 2005. On December 31, 2007, China Unicom Corporation Limited, or CUCL, our wholly-owned operating subsidiary, successfully acquired Unicom Guizhou from Unicom Group, as described in “A. History and Development of the Company — Acquisition of Unicom New Century, Unicom New World and Unicom Guizhou and the Sale of Guoxin Paging” under Item 4. Since Unicom Guizhou and our company were both under the common control of Unicom Group prior to and after such transaction, such transaction is considered as a business combination of entities and businesses under common control, and has been accounted for using merger accounting in accordance with AG5. The acquired assets and liabilities of Unicom Guizhou are stated at historical cost, and are included in the consolidated financial statements included in this Form 20-F as if Unicom Guizhou had always been part of our company. As a result, the 2003, 2004, 2005 and 2006 comparative figures in the consolidated financial information included in this Form 20-F have been restated accordingly.

     See Note 38 to the consolidated financial statements included in this annual report for a summary of the principal differences between HKFRS and US GAAP in relation to our financial statements.

		As of or for the year ended December 31
		2003(1)(2)				2004(1)				2005				2006				2007				2007
		RMB				RMB				RMB				RMB				RMB				US$(3)
		(in millions, except number of shares and per share data)
Statement of Income Data:
HKFRS
Revenue (Turnover):
Cellular service business			58,338				72,514				80,707				87,758				90,505				12,407
-GSM service business			41,586				47,926				52,618				59,882				62,775				8,606
-CDMA service business			16,752				24,588				28,089				27,876				27,730				3,801
Paging business			1,403				—				—				—				—				—
Long distance business			2,231				1,805				1,472				1,015				1,508				207
Data and internet business			3,412				3,614				3,000				2,320				2,626				360
Total service revenue			65,384				77,933				85,179				91,093				94,639				12,974
Sales of telecommunications products			2,258				1,735				2,859				4,254				4,900				672
Total revenue			67,642				79,668				88,038				95,347				99,539				13,646
Costs and expenses(7)			(61,653	)			(73,295	)			(80,945	)			(88,782	)			(86,584	)			(11,870	)
Income before income tax			5,989				6,373				7,093				6,565				12,955				1,776
Net income			4,060				4,395				4,922				3,801				9,301				1,275
-Basic net income per share(4)			0.32				0.35				0.39				0.30				0.71				0.10
-Number of shares outstanding for basic net income per share (in thousands)(4)			12,553,010				12,561,242				12,570,398				12,599,018				13,036,566				13,036,566
-Diluted net income per share(4)			0.32				0.35				0.39				0.30				0.71				0.10
-Number of shares outstanding for diluted net income per share (in thousands) (4)			12,556,728				12,593,054				12,607,476				12,649,306				13,161,089				13,161,089
-Basic net income per ADS(5)			3.24				3.50				3.92				3.02				7.13				0.98
-Number of ADS outstanding for basic net income per ADS (in thousands) (4)			1,255,301				1,256,124				1,257,040				1,259,902				1,303,657				1,303,657
-Diluted net income per ADS(5)			3.24				3.49				3.90				3.00				7.07				0.97
-Number of ADS outstanding for diluted net income per ADS (in thousands)(4)			1,255,673				1,259,305				1,260,748				1,264,931				1,316,109				1,316,109
US GAAP(6)
Revenue			72,474				79,969				88,244				95,553				99,540				13,646

		As of or for the year ended December 31
		2003(1)(2)				2004(1)				2005				2006				2007				2007
		RMB				RMB				RMB				RMB				RMB				US$(3)
		(in millions, except number of shares and per share data)
Operating income from continuing operations			10,562				8,141				8,162				9,272				10,224				1,402
Net income before discontinued operation			5,870				4,614				5,004				6,225				9,866				1,353
Loss from discontinued operation, net of tax(2)			1,342				—				—				—				—				—
Net income			4,538				4,614				5,004				6,225				9,866				1,353
-Basic net income per share before discontinued operation and cumulative effect of change in accounting policy(4)			0.47				0.37				0.40				0.49				0.76				0.10
-Basic net income per ADS before discontinued operation and cumulative effect of change in accounting policy(5)			4.68				3.67				3.98				4.94				7.57				1.04
-Basic net income per share after discontinued operation and cumulative effect of change in accounting policy(4)			0.36				0.37				0.40				0.49				0.76				0.10
-Basic net income per ADS after discontinued operation and cumulative effect of change in accounting policy(5)			3.61				3.67				3.98				4.94				7.57				1.04
Balance Sheet Data:
HKFRS
Property, plant and equipment			119,447				120,029				113,800				112,796				116,162				15,924
Total assets			154,538				151,058				144,621				148,297				149,422				20,484
Short-term debt and current portion of other long-term debt			18,173				20,978				22,376				11,072				2,191				300
Obligations under finance lease-current portion			25				938				468				100				1				—
Obligations under finance lease-non current portion			100				537				146				10				4				1
Other long-term debt			37,263				26,176				12,052				4,139				1,661				228
Convertible bonds			—				—				—				10,325				—				—
Shareholders’ equity			68,827				72,835				76,670				79,864				97,217				13,327
Share capital			1,331				1,332				1,334				1,344				1,437				197
US GAAP(6)
Property, plant and equipment			119,755				120,238				113,976				112,700				115,977				15,899
Total assets			152,145				148,634				141,949				145,577				146,431				20,074
Obligations under finance lease-current portion			25				938				468				100				1				—
Obligations under finance lease-non current portion			100				537				146				10				4				1
Other long-term debt			37,263				26,176				12,052				4,139				1,661				228
Convertible bonds			—				—				—				7,863				—				—
Shareholders’ equity			65,721				69,835				73,649				79,186				93,961				12,881
Share capital			1,331				1,332				1,334				1,344				1,437				197
Other Financial Data:
HKFRS
Net cash generated from operating activities			22,808				24,319				31,408				36,142				32,331				4,432
Net cash used in investing activities			(19,237	)			(19,099	)			(16,848	)			(17,575	)			(24,967	)			(3,423	)
Net cash used in financing activities			(8,767	)			(9,871	)			(13,733	)			(11,814	)			(12,933	)			(1,773	)
Dividend declared per share			0.10				0.10				0.11				0.18				0.20				0.03
US GAAP(6)
Net cash generated from operating activities			26,243				25,020				32,100				36,573				32,605				4,470
Net cash used in investing activities			(20,488	)			(19,819	)			(17,540	)			(18,005	)			(24,360	)			(3,339	)
Net cash used in financing activities			(11,386	)			(9,910	)			(13,733	)			(11,814	)			(13,813	)			(1,894	)
Dividend declared per share			0.10				0.10				0.11				0.18				0.20				0.03

Historical Exchange Rates Information

     We publish our financial statements in Renminbi, or RMB, the legal tender currency in the PRC. In this annual report, references to “US dollars” or “US$” are to United States dollars and references to “Hong Kong dollars”, “HK dollars” or “HK$” are to Hong Kong dollars. Solely for the convenience of the reader, this annual report contains translations of certain RMB and Hong Kong dollar amounts into US dollar amounts and vice versa at specified rates. These translations should not be construed as representations that the RMB or Hong Kong dollar amounts actually represent such US dollar amounts or could be converted into US dollar amounts at the rates indicated or at all. Unless otherwise stated, the translations of RMB and Hong Kong dollars into US dollars and vice versa have been made at the rate of RMB7.2946 to US$1.00 and HK$7.7984 to US$1.00, respectively, the noon buying rates in New York City for cable transfers payable in RMB or Hong Kong dollars as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2007.

     The noon buying rates on June 19, 2008 were RMB6.8770 to US$1.00 and HK$7.8068 to US$1.00, respectively. The average noon buying rates for 2003, 2004, 2005, 2006 and 2007 were RMB8.2772, RMB8.2768, RMB8.1826, RMB7.9723 and RMB7.6072, respectively, to US$1.00, and HK$7.7864, HK$7.7899, HK$7.7755, HK$7.7681 and HK$7.8019, respectively, to US$1.00, calculated as the average of the noon buying rates on the last day of each month during each applicable year. The following table sets forth the high and low noon buying rates between RMB and the US dollar (in RMB per US dollar) and Hong Kong dollar and the US dollar (in Hong Kong dollar per US dollar) for each month during the previous six months:

Period		High				Low				High				Low
		(RMB per US$1.00)								(HK$ per US$1.00)
December 2007			7.4120				7.2946				7.8073				7.7879
January 2008			7.2946				7.1818				7.8107				7.7961
February 2008			7.1973				7.1100				7.8012				7.7807
March 2008			7.1110				7.0105				7.7897				7.7642
April 2008			7.0185				6.9840				7.7963				7.7863
May 2008			7.0000				6.9377				7.8060				7.7931
June 2008 (through June 19, 2008)			6.9633				6.8770				7.8159				7.8037

B. Capitalization and Indebtedness

     Not applicable.

C. Reasons for the Offer and Use of Proceeds

     Not applicable.

D. Risk Factors

Risks Relating to Our Business

Our cellular businesses face competition from China Mobile Communications Corporation and its subsidiaries, China Telecommunications Corporation and its subsidiaries, and China Network Communications Group Corporation and its subsidiaries. Such competition may intensify and result in slower subscriber growth, lower tariffs and higher customer acquisition costs for us, which would materially adversely affect our financial condition, results of operations and growth prospects.

     Our cellular businesses face intense competition from China Mobile. China Mobile is the largest cellular operator in China and has competitive advantages over us in areas such as customer base, financial resources and brand recognition. We have been experiencing intense competition from China Mobile in our cellular service areas, and such competition may continue and even intensify. In particular, continued price competition between China Mobile and us may accelerate the decline of the average revenue per user per month, or ARPU, of our cellular services, and adversely affect our profitability. Moreover, China Mobile has announced its intention to launch 3G cellular services in the future, which could further intensify the competition with our cellular businesses.

     Our cellular services also compete with the local wireless telecommunications services offered by China Telecom and China Netcom in their respective service areas, known as “Little Smart” services, which are based on their fixed line networks and primarily utilize the personal handy-phone system, or PHS, technology. “Little Smart” services are offered as extensions of fixed line services and, with such features as “calling-party-pays” arrangements, carry significantly lower tariffs than cellular services. Currently these services attracted approximately 87 million users in China by the end of 2007. In addition, both China Telecom and China Netcom have announced their intention to develop 3G cellular services and have taken certain actions to develop the cellular services, which would impose further direct competition with our cellular business.

     Increased competition from China Mobile, China Telecom and China Netcom could lead to slower subscriber growth, lower traffic volume of our cellular services, continued price pressure and higher customer acquisition costs, which may materially adversely affect our financial condition, results of operations and growth prospects.

     On May 24, 2008, the MII, the NDRC and the Ministry of Finance of the PRC jointly issued the “Announcement on Deepening the Reform of the Structure of the Telecommunications Sector”. See “A. History and Development of the Company — Recent Developments — Proposed Restructuring of the PRC Telecommunications Industry” under Item 4. and “D. Risk Factors — Risks Relating to the Telecommunications Industry in China — Regulatory or policy changes relating to the PRC telecommunications industry or any future industry restructuring may materially adversely affect our financial condition, results of operations and growth prospects” under Item 3. In particular, China Telecom is expected to engage in cellular businesses following the proposed industry restructuring, and the competition in the telecommunications industry is expected to further intensify as a result of the proposed industry restructuring.

Our proposed merger with China Netcom may not be completed and completion of the proposed merger is subject to various risks.

     On June 2, 2008, our board of directors and the board of directors of China Netcom, jointly announced that we formally presented proposals to the board of directors of China Netcom, and requested the China Netcom board to put forward such proposals to the shareholders of China Netcom to consider a merger of us and China Netcom by way of a scheme of arrangement by China Netcom under Hong Kong laws, which we refer to as the Scheme or the proposed merger. If the Scheme becomes effective, China Netcom will become our wholly-owned subsidiary. See “A. History and Development of the Company — Recent Developments — Proposed Merger between Us and China Netcom by Way of a Scheme of Arrangement” under Item 4.

     The effectiveness of the Scheme is subject to various conditions, including, among other things: (i) approval of our shareholders; (ii) approval by the requisite majority of disinterested shareholders of China Netcom; (iii) sanction of the Scheme (with or without modifications) and the confirmation of the reduction of the share capital of China Netcom by the High Court of Hong Kong; and (iv) receipt of all authorizations, consents and approvals from or with any governmental or regulatory body and any third party consents.

     We cannot assure you that the conditions for the completion of the Scheme will be satisfied. If the conditions are not satisfied, the Scheme may not become effective and we may not be able to complete the proposed merger and China Netcom may not become our wholly-owned subsidiary. In addition, completion of the Scheme may require us to prepay a portion of our term loan facility with 13 financial institutions in accordance with the terms of the loan agreement. If we are required to do so, we expect to use the proceeds from the proposed disposal of our CDMA business, or other funds, to fund this repayment. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions” under Item 4.

We may fail to realize the anticipated benefits of our proposed merger with China Netcom and the proposed merger may also expose us to uncertainties and risks, any of which could materially adversely affect our future business performance and financial condition.

     If the Scheme becomes effective, we will then commence the process of integrating the business of China Netcom into our existing operations. We believe that the proposed merger represents an important transaction for us, following the industry trend of convergence between fixed lines and wireless businesses within the PRC, allowing us to benefit from increased economies of scale, reinforce our market position, improve our overall competitiveness and lay the foundation for sustainable long-term growth. We anticipate that through effective integration, synergies would occur in six key areas, including through: (i) a clear strategic positioning of our enlarged group; (ii) an improvement of the market position of our enlarged group; (iii) a combination of resources and strengths to achieve economies of scale and larger scope; (iv) technological and product innovation to address changing market trends; (v) enhanced human capital and organizational structure; and (vi) a more optimal capital structure and enhanced financial capabilities.

     Nevertheless, the scale, scope and nature of the integration and customer retention efforts required in connection with the proposed merger present significant challenges, and we may be unable to integrate our businesses on the expected timeline and realize the anticipated benefits or realize such benefits on the proposed timeline. In particular, the proposed merger may not meet our expectations and the realization of the anticipated benefits may be delayed or reduced as a result of numerous factors, some of which are outside our control. These factors include, among other things:

	•		difficulties in integrating the operations of China Netcom, including information systems, personnel, operating and accounting policies and procedures, and overlapping operations, subsidiaries and branch networks;
	•		unforeseen contingent risks or latent liabilities relating to the proposed merger that may become apparent in the future;
	•		difficulties in managing a much larger business;
	•		a failure to complete or to timely complete the proposed sale of our CDMA business to China Telecom or to achieve the benefits anticipated from such disposal;
	•		loss of key personnel; and
	•		increase in competition in the PRC telecommunications industry resulting from the ongoing restructuring of the PRC telecommunications industry, which among other things, may require us to increase our marketing efforts.

     Furthermore, the proposed merger may also expose us to uncertainties and risks, including uncertainties and risks associated with:

	•		the management and development of China Netcom’s fixed-line business;
	•		the integration of China Netcom’s business with our existing business;
	•		the integration of existing significant accounting policies and critical accounting estimates between China Netcom and us;
	•		unforeseen or potential liabilities and exposures associated with China Netcom’s business and financial results;
	•		the diversion of financial or other resources from our existing businesses; and
	•		potential loss of, or harm to, relationships with employees or customers.

     Any of the above could adversely impact our anticipated benefits from the proposed merger and could materially adversely affect our future business performance, operating results and financial condition.

     The contemplated disposition of our CDMA business may not be completed.

     On June 2, 2008, we, CUCL and China Telecom Corporation Limited entered into a framework agreement which sets out the key terms and conditions on which we will proceed with the proposed sale of our CDMA mobile telecommunications business to China Telecom. However, the framework agreement does not contain all the necessary details in respect of our proposed CDMA business disposal. We expect to enter into additional transaction agreements which will specify detailed terms and conditions of the proposed CDMA business disposal. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions” under Item 4.

     The completion of our proposed CDMA business disposal is subject to various conditions, including, among other things: (i) the requisite shareholder approvals in respect of the disposal of the CDMA business and the CDMA network and (ii) receipt of any other regulatory or corporate approvals that are necessary for the completion of the proposed CDMA business disposal. If any of these conditions are not satisfied on or before December 31, 2008, or such other date as we, CUCL and Telecom may agree, the framework agreement will automatically terminate.

     We cannot assure you that the conditions for the completion of the proposed CDMA business disposal will be satisfied. If we or any other relevant parties are unable to satisfy any of the conditions for the completion of the proposed CDMA business disposal or satisfy these conditions in the time frame that we expect, we may not be able to sell our CDMA business to China Telecom.

We may fail to realize the anticipated benefits of our proposed CDMA business disposal and our proposed CDMA business disposal may also expose us to uncertainties and risks, any of which could materially adversely affect our future business performance and financial conditions.

     In recent years, our GSM business has become the most significant contributor to our financial and operational performance. We believe that our proposed CDMA business disposal will enable us to focus our financial and operational resources on the enhancement of our GSM business and the anticipated future development of 3G services. Moreover, if our proposed merger with China Netcom is completed, we believe that our proposed CDMA business disposal will help better position our enlarged group to execute a more focused business development plan, enhance our long-term competitiveness, and achieve a more distinct strategic positioning.

     However, even if our proposed CDMA business disposal is completed, the benefits anticipated to result from the disposal may not be realized in the expected scale or timeline due to numerous factors, some of which are beyond our control, and the proposed CDMA business disposal may also expose us to uncertainties and risks. In particular:

	•		we may need to further strengthen our customer relationships and may also need to further increase our marketing efforts and expenses;
	•		in connection with the completion of our proposed CDMA business disposal, a number of our employees will be transferred to China Telecom, including employees who have relevant GSM service related experience and existing job duties, and the completion of the proposed CDMA business disposal may result in the loss of certain key personnel and operational expertise;
	•		we may have to further increase capital expenditures for expanding our other existing businesses, including GSM business; and
	•		any deterioration in our CDMA service revenue for the six months ending June 30, 2008 may result in a downward adjustment to the consideration for the proposed CDMA business proposal pursuant to the adjustment mechanism set forth in the framework agreement with China Telecom, and, as result, we may receive less consideration upon completion of the CDMA business disposal than currently anticipated.

     Any of the above could adversely impact the anticipated benefits from our proposed CDMA business disposal and could materially adversely affect our future business performance and financial condition. In addition, we may be required to prepay a portion of our term loan facility with 13 financial institutions under the loan agreement and we expect to make such prepayment from the proceeds of the disposal of our CDMA business.

Our CDMA services may continue to face competition from GSM services in China.

     We are the only cellular operator offering CDMA services in China. The majority of cellular subscribers in China today are subscribers to services based on the global system for mobile communications, or GSM. As of December 31, 2007, we had approximately 41.93 million CDMA subscribers, while there were over 547 million cellular subscribers in China as of December 31, 2007, according to the Ministry of Information Industry. CDMA cellular services compete with GSM services for cellular subscribers, who may be reluctant to switch to CDMA cellular services because of the need to obtain a new CDMA handset and a new phone number. As a result of the smaller subscriber base, the overall size of the supply chain for CDMA cellular services in China is still significantly smaller than the supply chain for GSM cellular services.

     Whether our CDMA services can gain a more favorable market position will continue to be subject to a number of uncertainties, for example, whether we can effectively retain our existing subscribers and attract sufficient new CDMA cellular subscribers, whether we can effectively utilize our CDMA marketing expenses to accelerate the revenue growth of our CDMA business, and whether we can continue to rapidly increase revenues from value-added services by capitalizing on the technological advantages of CDMA 1X wireless data services. Any of these uncertainties may adversely affect the growth and profitability of our CDMA cellular services and consequently our financial condition and results of operations.

     On June 2, 2008, we announced plans for a sale of our CDMA mobile telecommunications business to China Telecom. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions — Proposed Disposal of CDMA Business” under Item 4.

Our CDMA and GSM businesses compete with each other in certain areas, which may adversely affect the growth and profitability of these businesses.

     To implement differentiated and dedicated management of our CDMA and GSM businesses, we have implemented the segregation of the sales and marketing functions of these two businesses, which requires (i) more delineated allocation of resources in personnel, management, finance and information technology, among others, and (ii) more management coordination at both headquarter and branch levels. However, we may not be able to achieve favorable results or maintain such results from the implementation of our segregation of the sales and marketing functions of our CDMA and GSM businesses. In addition, the competition between the two businesses for our internal resources as well as external cellular subscribers may not lead to overall better results of our operations. If we cannot coordinate the development of our CDMA and GSM services effectively, or obtain adequate resources for both our GSM and CDMA cellular services, the growth and profitability of these businesses and our financial condition, results of operations and growth prospects may be adversely affected.

     On June 2, 2008, we announced plans for the sale of our CDMA mobile telecommunications business to China Telecom. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions — Proposed Disposal of CDMA Business” under Item 4.

Failure to continually optimize, expand and upgrade our networks and infrastructure or changes in telecommunications technology and technological standards could adversely affect our competitive position and hinder our growth.

     The growth of our businesses depends on whether we are able to continue to optimize and expand the coverage and capacity of our networks, to upgrade the technology and to improve the quality of our networks in a timely and effective manner. We also need to constantly improve the quality of our existing networks in order to enhance our telecommunications services.

     In addition, the telecommunications industry in China and elsewhere in the world is subject to rapid and significant changes in technology and technological standards, including the technology migration to 3G. Such changes may render our networks and systems inadequate or obsolete. As a result of such changes, we may need to make significant changes and upgrades to our existing networks and infrastructure or construct new networks and infrastructure, which may require substantial capital expenditures and other resources. Although the PRC government has indicated that it will issue three 3G licenses to telecommunications services providers in China upon the completion of the proposed industry restructuring announced in May 2008, the timing as well as the manner of such issuances is uncertain. As a result, the timing and magnitude of the 3G-related capital expenditures and other investments continue to involve many uncertainties that are beyond our control, and depend in part on when and in what manner we may be granted such a license as well as which 3G-based technology standard we may be required to adopt. If we are required to make substantial capital expenditures and other investments in order to effectively implement new 3G-based technologies, our financial condition, results of operations and cash flow may be materially and adversely affected in one or more given periods.

     Our ability to expand and upgrade our networks and infrastructure is subject to a number of uncertainties, including our ability to achieve the following on a timely basis and on acceptable terms:

	•		manage technology migration in an effective manner;
	•		obtain adequate financing;
	•		obtain relevant government licenses, permits and approvals;
	•		obtain adequate network equipment and software;
	•		retain experienced management and technical personnel;
	•		obtain sufficient spectrum frequencies, network numbers and other telecommunications resources controlled by the PRC government;
	•		gain access to the sites for network construction or upgrade; and
	•		enter into interconnection and other arrangements with other operators.

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

The CDMA handset promotional packages have increased our costs and expenses and may adversely affect our profitability.

     In order to accelerate the development of our CDMA business and subscriber growth, we have offered CDMA handset promotional packages. Under those arrangements, CDMA handsets were provided to subscribers for their use during the specified contract periods as long as such subscribers agreed to incur a minimum amount of service fees during the contract period. The maximum contract period is two years. The cost of the handsets provided to subscribers under these contractual arrangements, treated as deferred customer acquisition costs, was deferred, to the extent recoverable, and amortized over the contractual period during which we expect to receive the minimum contract revenue. Therefore, these promotional packages tend to increase our costs and expenses.

     While we have significantly reduced the use of such CDMA handset promotional packages in recent years, the carrying amount of the deferred customer acquisition costs has been gradually reduced but remained sizeable. For the year ended December 31, 2007, amortization of such deferred customer acquisition costs was approximately RMB4.00 billion and the carrying amount of such costs amounted to RMB2.86 billion as of December 31, 2007. As a result, while the use of these CDMA promotional packages has accelerated the growth of our CDMA business, it may adversely affect the profitability of our CDMA business and our financial condition and results of operations.

     In addition, upon expiration of the contract period of these CDMA handset promotional packages, certain subscribers did not renew their contracts and switched to cheaper service plan packages or subscribed to our competitors’ cellular services, which contributed to the decrease of ARPU and the increase of the churn rate of our CDMA business in 2007. Such effects, if they continue, may adversely affect the profitability of our CDMA business and our financial condition and results of operations.

     In order to control the costs of our CDMA promotional packages, we have implemented a policy to centralize the purchases of CDMA handsets since 2005. This centralized purchasing policy requires us to maintain a certain level of CDMA handsets inventory, which is subject to the risk of inventory obsolescence. As of December 31, 2007, we maintained an inventory of CDMA handsets of RMB1.50 billion.

     On June 2, 2008, we announced plans for a sale of our CDMA mobile telecommunications business to China Telecom. See “A. History and Development of the Company — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions — Proposed Disposal of CDMA Business” under Item 4.

If we are unable to fund our capital expenditure and debt service requirements, our financial condition and growth prospects will be adversely affected.

     We continue to have a significant level of capital expenditure and debt service requirements. We plan to spend approximately RMB30.95 billion for capital expenditure in 2008, an increase of 20.3% from 2007. We cannot assure you that we will be able to obtain future financing on a timely basis and on acceptable terms, and our failure to do so may adversely affect our financial condition, competitive position and growth prospects. Our ability to obtain acceptable financing at any time may depend on a number of factors, including, among others:

	•		our financial condition and results of operations;
	•		our creditworthiness and relationship with lenders;

	•		the condition of the economy and the telecommunications industry in China;
	•		conditions in relevant financial markets in China and elsewhere in the world; and
	•		our ability to obtain any required government approvals for our financings.

Our long distance, data and Internet businesses remain small compared to China Telecom or China Netcom, and competition from China Telecom, China Netcom and other telecommunications service providers may adversely affect our profitability and growth in these businesses.

     The fixed line operators of China Telecom and China Netcom currently hold the strongest market position in the public switched long distance telephony, or PSTN, and data services markets in their respective service areas. They are also the leading providers of Internet protocol telephony, or IP telephony, and Internet access services in China. China Telecom and China Netcom have competitive advantages over us in areas such as customer base, financial resources, fixed network coverage and “last-mile” access. Our IP telephony services also compete with other service providers including China Satellite Communication, or China SatCom, and China TieTong Telecommunications Corporation, or China TieTong. In 2007, intense competition continued to contribute to the decreases in average realized tariff rates for long distance services. In addition, our lack of licenses to operate local telephony networks has continued to hinder the growth of our long distance, data and Internet businesses. Competition from China Telecom, China Netcom and other service providers may continue to adversely affect the profitability and growth of our long distance, data and Internet businesses.

     On June 2, 2008, our board of directors and the board of directors of China Netcom jointly announced proposals of a merger of us and China Netcom by way of a scheme of arrangement of China Netcom under Hong Kong laws. See “A. History and Development of the Company — Recent Developments — Proposed Merger between us and China Netcom by way of a Scheme of Arrangement — Joint Merger Announcement” under Item 4.

Our churn rates and doubtful debt ratio may increase.

     The monthly average churn rate of our GSM and CDMA cellular services increased from 2.47% in 2006 to 2.76% in 2007 and from 1.62% in 2006 to 2.04% in 2007, respectively.

     The reasons for such increases include, among others, competition from other service providers, the increase in the proportion of low-end, cost-sensitive subscribers among new subscribers and discontinuance of some contractual subscribers upon expiration of their contract period under certain CDMA handset subsidy packages. Increased churn rates of our GSM and CDMA services may adversely affect our market share and increase our costs of additional customer acquisitions and bad debt, which would adversely affect our financial condition, results of operations and growth prospects.

     Due to an underdeveloped credit reporting system and intense competition in the cellular telecommunications market in China, our doubtful debt ratio for cellular services, calculated as the amount of doubtful debt provided during the year divided by revenue from our cellular services, may increase in the future. Our doubtful debt ratio of our GSM and CDMA cellular businesses was at 1.73% for the year ended December 31, 2007. If such ratio increases in the future, our financial condition and results of operations could be adversely affected.

     On June 2, 2008, we announced plans for a sale of our CDMA mobile telecommunications business to China Telecom Corporation Limited. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions.”

Obstacles in interconnection with networks of other telecommunications operators could jeopardize our operations.

     The effective provision of our cellular, long distance telephony and other services requires the interconnection between our networks and those of Unicom Group, and the networks of China Telecom, China Netcom, China Mobile and other telecommunications operators. Any obstacles in existing interconnection arrangements or any significant change of 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 can seriously jeopardize our operations and adversely affect our profitability and growth. Difficulties in the execution of new interconnection arrangements on a timely basis and on acceptable terms, including the inability to promptly establish additional interconnection links or increase interconnection bandwidths as required, could also adversely affect our financial condition, results of operation and growth prospects.

Our controlling shareholder, Unicom Group, can exert influence on us and cause us to make decisions that may not always be in the best interests of our other shareholders.

     Unicom Group indirectly controlled an aggregate of 71.18% of our issued share capital as of May 31, 2008. As our controlling shareholder, Unicom Group is able to influence our major business decisions through its control of our board of directors. All of our executive directors also serve as directors or executive officers of Unicom Group. In addition, our operations depend on a number of services provided by Unicom Group. For example, Unicom Group leases to us, on an exclusive basis, capacity on the CDMA network located in our cellular service areas, provides us with access to international gateways, supplies us with subscriber identity module cards, or SIM cards, user identity module cards, or UIM cards, and calling cards and provides equipment procurement services and customer services to us. Unicom Group and we also provide a number of services to each other, including interconnection services, sales agency and collection services and provision of premises. See “A. History and Development of the Company — Our Relationship with Unicom Group” under Item 4 of this annual report. The interests of Unicom Group and our interests in these transactions may differ and Unicom Group may cause us to make decisions that conflict with the interests of our other shareholders.

The internal reorganization of Unicom Group for the A Share offering has created a two-step voting mechanism that will require the approval of the minority shareholders of both our Company and the A Share Company for significant connected transactions between us and Unicom Group.

     In October 2002, Unicom Group completed an internal reorganization of its shareholding in our company and the initial public offering in China of its newly established subsidiary, China United Telecommunications Corporation Limited, or the A Share Company. As part of this restructuring, a portion of Unicom Group’s indirect shareholding in our company was transferred to the A Share Company, whose business is limited to indirectly holding the equity interest of our company without any other direct business operations. A voting mechanism was established to allow public shareholders of the A Share Company to indirectly participate in our shareholders’ meetings and a two-step voting mechanism was established for the approval of connected transactions. See “A. History and Development of the Company — Further Restructuring of Unicom Group and Initial Public Offering of the A Share Company in 2002” under Item 4 below. As a result, significant connected transactions between us or our subsidiaries and Unicom Group or its subsidiaries will require the separate approval of the independent minority shareholders both of our

company and of the A Share Company. Connected transactions approved by our independent minority shareholders nevertheless cannot proceed if they are not approved by the independent minority shareholders of the A Share Company. This adds another necessary step of approval process for those transactions.

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

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

     As of December 31, 2007, our management conducted an assessment of the effectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting as of December 31, 2007 was effective. PricewaterhouseCoopers, an independent registered public accounting firm, expressed unqualified opinions on the effectiveness of our internal control over financial reporting as of December 31, 2007. However, we cannot assure you that, in the future, our management will continue to conclude that our internal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective for future periods, our independent registered public accounting firm may disagree. If our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our controls are documented, designed, operated, reviewed or evaluated, or if the independent registered public accounting firm interprets the relevant requirements, rules or regulations differently from us, then it may issue an adverse opinion. Any of these possible outcomes in the future could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our consolidated financial statements, which could materially and adversely affect the market prices of our shares and ADSs.

Risks Relating to the Telecommunications Industry in China

Regulatory or policy changes relating to the PRC telecommunications industry or any future industry restructuring may materially adversely affect our financial condition, results of operations and growth prospects.

     The PRC government continues to regulate many aspects of the telecommunications industry in China. Potential changes in regulations and policies and their implementation could lead to significant changes in the overall industry environment. These changes may include, among others, new regulatory decisions or measures relating to issuance of 3G licenses, or selection of 3G technology standards, “calling-party-pays” arrangements, roaming charges or other tariff adjustments, fulfillment of telecommunications service providers’ universal service obligations and the associated expenses, usage of numbers or frequency resources and the associated fees, or standards and mechanisms of interconnection settlement, and could substantially affect our financial condition, results of operations and growth prospects. In addition, the former Ministry of Information Industry encouraged the cellular operators to implement “calling-party-pays” billing arrangements in China in the first half of 2007. As a result, we have adopted the “calling-party-pays” tariff policy in all of our new service packages. The implementation of “calling-party-pays” arrangements contributed to the decreases in service revenues from our cellular service and our ARPU in 2007 and may continue to adversely affect our revenue, financial condition and operating results. Furthermore, in

February 2008, the former Ministry of Information Industry and the NDRC jointly promulgated the Notice in Relation to Reduction of Tariff Cap for Domestic Mobile Roaming Services, or the Tariff Notice, to require mobile telecommunication companies in China to adjust mobile roaming charges where necessary to comply with the following new requirements:

	•		unifying domestic roaming charges with charges for long distance calls made during domestic roaming;
	•		unifying the charges for pre-paid and post-paid mobile subscribers;
	•		setting different tariff caps for callers and receivers in the context of domestic mobile roaming, with the tariff cap for callers being set at RMB0.6 per minute and the tariff cap for receivers being set at RMB0.4 per minute; and
	•		abolishing the additional charge for use of the long distance network in the context of domestic roaming.

     The Tariff Notice also requires telecommunication companies in China to upgrade their existing billing systems to comply with the above new requirements by March 1, 2008, which can be extended to May 1, 2008. We finished adjusting our charges and upgrading our billing system by March 1, 2008 in response to the requirements set forth in the Tariff Notice and such compliance may have an adverse impact on our revenue, financial condition and operating results.

     On May 24, 2008, the MII, the NDRC and the Ministry of Finance issued a joint announcement on furthering the reform of the telecommunications industry in China. According to the joint announcement, the principal objectives of this further reform include, among others: (i) supporting the formation of three telecommunications services providers, each with nationwide network resources, comparable scale and standing, full-service capabilities and competitive strength, in order to help optimize the allocation of telecommunications resources and foster market competition; (ii) promoting homegrown innovation by telecommunications services providers; and (iii) enhancing the service capabilities and quality of, and the regulatory framework governing, the telecommunications industry. To achieve these objectives, the PRC government is encouraging the following restructuring transactions: (a) the acquisition of our CDMA business by China Telecom, (b) the merger of us and China Netcom, (c) the transfer of the basic telecommunications services business currently operated by China SatCom into China Telecom, and (d) the consolidation of China Tietong into China Mobile Communications Corporation.

     Pursuant to the restructuring announcement, the detailed implementation plans relating to these restructuring transactions should be carried out in accordance with customary practices in the domestic and international capital markets. In addition, according to the restructuring announcement, three 3G licenses are expected to be granted to telecommunications services providers in China after the completion of the restructuring transactions, although the timing, as well as the manner, of such issuances of 3G licenses are uncertain. Furthermore, to maintain a balanced development of the telecommunications industry, the PRC government stated that it will adopt asymmetrical regulatory measures, as necessary, over a period of time following the completion of the above restructuring transactions. The PRC government also stated that it seeks to promote the integration of telecommunications services and networks of different services providers, including the offering of roaming services across different mobile telecommunications networks. While we are currently assessing the impact that the proposed restructuring may have on us, we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in the PRC would not materially and adversely affect our business, financial condition, results of operations and prospects. See “A. History and Development of the Company — Recent Developments” under Item 4.

The recent change in the regulatory authority of the PRC telecommunications industry may introduce new regulatory initiatives and such new regulatory changes as well as the proposed telecommunications law, once adopted, may adversely affect us.

     Under a proposal by the State Council which was approved by the People’s Congress in March 2008, the former Ministry of Information Industry has been consolidated into the MII. The MII may introduce significant new regulatory initiatives, and we cannot assure you that our business, financial condition and results of operations will not be adversely affected by such regulatory initiatives.

     Moreover, we understand that the MII is in the process of drafting a telecommunications law that, once adopted by the National People’s Congress, will become the basic telecommunications statute and provide the principal legal framework for telecommunications regulations in China. Although we expect that such law will positively affect the overall development of the telecommunications industry in China, we do not know what the full nature and scope of the law will be or when the law will be adopted and become effective. We cannot assure you that such telecommunications law or its implementing rules will not contain provisions that could materially change the regulatory environment of the PRC telecommunications industry and cause adverse effects on our business, financial condition and results of operations.

Issuance of additional telecommunications service licenses, including 3G licenses, may further intensify competition in the PRC telecommunications industry and materially adversely affect our financial condition, results of operations and growth prospects.

     Since the mid-1990s, the PRC government has taken various measures, including licensing more providers of telecommunications services, to encourage competition in the telecommunications industry. Currently, the Chinese telecommunications market has primarily six providers of basic telecommunications service — China Telecom, China Mobile, China Netcom, China Satcom, China Railcom and our Company — and thousands of value-added service providers. In addition, the government may grant additional telecommunications service licenses in the future, including 3G licenses.

     In May, 2008, the PRC government announced that three 3G licenses are expected to be granted to telecommunications services providers in China upon the completion of the proposed restructuring. However, it is uncertain when the 3G licenses will be issued, which 3G-based technology standard or standards will be adopted and whether and when we will be issued a 3G license. The issuance of 3G licenses may significantly change the overall competition environment of the wireless telecommunications industry and further intensify the competition among telecommunications service providers in China. While we have participated in the 3G trial test and study programs sponsored by the MII (as well as the former Ministry of Information Industry) and have been preparing for developing 3G business by upgrading our networks and services, we cannot assure you that the PRC government will grant us the requisite approvals and 3G license or licenses in a timely or favorable manner, or at all. Even if we are granted one or more 3G licenses, we cannot assure you that we will successfully manage the technology migration to 3G and 3G operations and effectively compete with other cellular services provider or providers.

     After its accession to the World Trade Organization, or WTO, in December 2001, China promulgated the Administrative Regulations on Telecommunications Companies with Foreign Investment, implementing its commitments to the WTO. Those commitments include the gradual reduction of foreign ownership restrictions in the telecommunications industry and the step-by-step opening of the telecommunications market in China to foreign operators. Currently, foreign investors are permitted to own up to 49% of joint ventures that offer mobile voice and data telecommunications services without any geographic restrictions in China. See “B. Business Overview — Regulatory and Related Matters — Entry

into the Industry” under Item 4. When the PRC government grants licenses to additional telecommunications service providers in the future, licensees may include foreign-invested operators. Such foreign-invested operators entering into China’s telecommunications market may have competitive advantages over us in areas such as financial resources, network management and technical expertise.

     Increased competition in China’s telecommunications services industry could impede the growth of our businesses, further increase competition for skilled and experienced employees, result in or exacerbate price competition and increase our customer acquisition costs and other costs and expenses, and thereby adversely affect our results of operations, financial condition and growth prospects.

The telecommunications industry in China may not sustain its pace of rapid growth, which may adversely affect the growth and profitability of our business.

     The telecommunications industry in China has experienced rapid growth in the last several years, especially in the cellular communications sector. The total number of cellular subscribers in China increased from 43.3 million at the end of 1999 to 547 million by December 31, 2007. Cellular penetration increased from 3.5% to over 41.6% nationwide during the same period. The growth in cellular subscribers has been slowing down as cellular penetration continues to increase in our cellular service areas. In addition, ARPU for the cellular communications market in China continues to decline. For example, ARPU of our CDMA subscribers declined from RMB65.8 in 2006 to RMB58.1 in 2007. Any slowdown in the growth in China’s telecommunications industry may adversely affect the growth and profitability of our business.

The PRC government may require us, along with other telecommunications service providers in China, 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 China are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government authorities, and the MII has the authority to delineate the scope of universal service obligations. The MII, together with government finance and pricing authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services.

     While specific universal services obligations are not yet clear, we believe that such services may include mandatory provision of basic telecommunications services in less economically developed areas in China and mandatory contribution to a universal service fund. In addition, as part of the transitional measures prior to the formalization of a universal service obligation framework, the former Ministry of Information Industry and the MII has required major telecommunications service providers in China, including Unicom Group, to participate in a project to provide telephone services in thousands of remote villages in China. In participating in such project, Unicom Group, with our assistance, undertook the universal service obligation to extend telecommunications service coverage to all administrative-level villages in China from 2004 to 2007 primarily through its CDMA and satellite transmission networks. See “B. Business Overview — Regulatory and Related Matters — Universal Services” under Item 4.

     We cannot predict whether the PRC government will specifically require us to undertake universal service obligations in the future. To the extent we are required to do so, it is currently uncertain whether we will be adequately or timely compensated by the government or by the universal service fund. We cannot assure you that we will be able to realize an adequate return on investments for expanding networks to, and providing telecommunications services in, those less economically developed areas due to potentially higher capital expenditure requirements, lower usage by customers and lack of flexibility in setting our

tariffs. We also cannot predict whether we will be required to make contribution to the universal service fund. Any of these events may adversely affect our financial condition and results of operations.

      On June 2, 2008, we announced plans for a sale of our CDMA mobile telecommunications business to China Telecom. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions.”

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

     Concerns have been expressed in some countries that the electromagnetic signals emitted by wireless telephone handsets and base stations may pose health risks at exposure levels below existing guideline levels, and interfere with the operation of electronic equipment. In addition, cellular operators have been subject to lawsuits alleging various health consequences as a result of cellular handset usage or proximity to base stations or seeking protective or remedial measures. While we are not aware that such health risks have been substantiated, there can be no assurance that the actual, or perceived, risks associated with the transmission of electromagnetic signals will not impair our ability to retain customers and attract new customers, reduce cellular service usage or result in litigation.

Risks Relating to Doing Business in China

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

     Substantially all of our business operations are conducted in China and substantially all of our revenues are derived from our operations in China. Accordingly, our business, financial condition, results of operations and prospects are affected to a significant degree by economic, political and social conditions in China. The PRC economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past three decades, growth has been uneven across different regions and among various economic sectors. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments. In recent years, the PRC government has implemented certain measures to manage the pace of economic growth. These measures may cause a decrease in the level of economic activity in China, including a decline in individual spending activities, which in turn could adversely affect our financial condition and results of operations.

     In addition, China has experienced increased inflation since the second half of 2007. Such increased inflation has caused and may continue to cause the PRC government to implement administrative and economic measures in an effort to managing the pace of the economy growth. In 2007, the PRC government raised interest rates six times and raised banks’ required reserve ratio ten times and it may continue these and other significant measures to control inflation and cool down the economy. The overall demand for our services may be reduced as a result of the decreased level of economic activities, which could adversely affect our business, as well as our financial condition and results of operations.

If the PRC government revises the current regulations that allow a foreign investment enterprise to pay foreign exchange in current account transactions, our operating subsidiary’s ability to satisfy its foreign exchange obligations and to pay dividends to us in foreign currencies may be restricted.

     The ability of CUCL to satisfy its foreign exchange obligations and to pay dividends to us depends on existing and future foreign exchange regulations in China. The Renminbi is currently convertible by foreign-invested enterprises in China to settle transactions under the current account, which include trade

and service related foreign exchange transactions and payments of dividends and interest on foreign loans. Renminbi currently cannot be freely converted without regulatory approval for transactions under the capital account, which includes outbound foreign investment and principal payments on foreign loans. CUCL, which holds substantially all of our assets and through which we conduct substantially all of our business, is a foreign-invested enterprise in China. This status allows it to purchase foreign exchange at designated foreign exchange banks for settlement of current account transactions without the approval of the State Administration for Foreign Exchange, or the SAFE. However, there is no assurance that the relevant PRC government authorities will not in the future impose any limitation on the ability of foreign-invested enterprises to purchase foreign exchange to satisfy their foreign exchange obligations or to pay dividends. In that event, CUCL’s ability to satisfy its foreign exchange obligations and to pay dividends to us in foreign currencies may be restricted and the interests of our shareholders may, in turn, be affected.

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

     Substantially all of our revenues and costs and expenses are denominated in Renminbi, while a portion of our borrowings, equipment purchases and other capital expenditures are denominated in foreign currencies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of Renminbi to that of U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies determined by the People’s Bank of China. As of December 31, 2007, the Renminbi has appreciated approximately 13.5% in value against the U.S. dollar since July 21, 2005. On May 19, 2007, the People’s Bank of China announced a policy to expand the maximum daily floating range of RMB trading prices against the U.S. dollar in the inter-bank spot foreign exchange market from 0.3% to 0.5%. With increased floating range of the Renminbi’s value against foreign currencies, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar or other foreign currencies in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued, or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Renminbi against the U.S. dollar or other foreign currencies in the future. Increased fluctuations of the Renminbi could adversely affect the value in foreign currency terms of cash flow generated from our operations or any dividends payable on our shares and ADSs, and therefore the price of our shares and ADSs. Any future Renminbi devaluations could also increase our equipment importation costs or lead to significant fluctuations in the exposure of our foreign-currency-denominated liabilities, thereby adversely affecting our profitability.

The new provisions of the PRC Employment Contract Law may substantially increase our labor-related costs in the future.

     A new labor contract law in China, or the Employment Contract Law, became effective on January 1, 2008. The Employment Contract Law contains a number of provisions that are more favorable to employees than the prior labor laws and regulations in China. For example, an employee may terminate the employment contract without notice if his or her employer fails to pay regulatory social insurance contributions for the employee, or the employer has a workplace policy that violates PRC law and causes harm to the employee. In such case, the employee is entitled to compensation by the employer in an amount equal to his or her average monthly salary for the prior twelve months times the number of years the employee has served the employer. An employer is also obligated to compensate an employee if the employer decides not to renew an existing employment contract, unless the employee refuses the employer’s offer to renew the expiring employment contract with the same or better terms. In addition, an employer is obligated to provide an open-ended employment contract after an employee has completed two consecutive terms of fixed-term employment, under which the employer will be liable to pay damages to an employee if the employer terminates the employment without cause, until the employee reaches an age at which he or she is eligible for pension payment. As a result of the implementation of the new Employment Contract Law, we may have greater difficulty terminating underperforming employees and may incur higher levels of labor costs in order to comply with the provisions of the new law, which may adversely affect our business, financial condition and operating results.

Uncertainties in the PRC legal system could limit the legal protections available to us and to foreign investors.

     Our wholly-owned operating subsidiary, CUCL, is organized under the laws of PRC and is generally subject to laws and regulations applicable to foreign-invested enterprises in China. The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases may be cited for reference but have limited precedential value. Since 1979, the PRC government has promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, property, taxation and trade. However, because these laws and regulations are relatively new, and because of the relatively limited volume of published cases and their non-binding nature, interpretation and/or enforcement of these laws and regulations involves uncertainties. Therefore, the PRC legal system may not afford the same legal protection available to investors in the United States or elsewhere.

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

     In May 2008, an earthquake registering 8.0 on the Richter scale struck Sichuan Province and its neighboring areas in China, devastating much of the affected areas and causing tens of thousands of deaths and widespread injuries. Our network equipment, including our base stations, in the affected areas sustained extensive damages in the earthquake, leading to service stoppage and other disruptions in our operations in those areas. In addition, in January and February 2008, certain areas of China, in particular its southern, central and eastern regions, experienced what was reportedly the most severe winter weather in the country in half a century, which resulted in significant and extensive damage to various properties, blackouts, transportation and communications disruptions and other losses in the affected areas. Our base stations in the affected areas suffered from power failures and our network equipment sustained other damage due to this severe winter weather. Moreover, certain countries and regions, including China, have encountered incidents of the H5N1 strain of bird flu, or avian flu, as well as severe acute respiratory syndrome, or SARS, over the past five years.

     We are unable to predict the effect, if any, that any future natural disasters and health hazards may have on our business. Any future natural disasters and health hazards may, among other things, significantly disrupt our ability to adequately staff our business, and may generally disrupt our operations. Furthermore, natural disasters and health hazards may severely restrict the level of economic activities in affected areas, which may in turn materially and adversely affect our business and prospects. As a result, any natural disasters or health hazards in China may have a material adverse effect on our financial condition and results of operations.

Item 4. Information on the Company

A. History and Development of the Company

Historical Industry Restructuring

     Since 1993, the PRC government has implemented a number of measures to restructure and introduce competition in the telecommunications industry. Prior to July 1994, China Telecom was the sole provider of telecommunications services in China. In July 1994, Unicom Group was established in accordance with the State Council’s approval to introduce orderly competition in the telecommunications industry. Since then, the PRC government has approved Jitong Network Communications Company Limited, or Jitong, and China Netcom Corporation Ltd., or CNCL, to provide IP telephony, Internet and data services. It has also approved China TieTong to provide most telecommunications services other than cellular services.

     In 1999, the State Council approved a plan to restructure the former China Telecom along four business lines: fixed line, cellular, paging and satellite communications. As a result of the restructuring, China Telecom retained the fixed line, data and Internet businesses, while China Mobile assumed the cellular business previously operated by China Telecom. In 2002, the PRC government further separated China Telecom into two companies, with the southern company retaining the name of China Telecom and assets and businesses in 21 provinces in southern and western China and the northern company retaining assets and businesses in 10 provinces in northern China and merging with CNCL and Jitong to form China Netcom. As a result of the PRC government’s efforts to introduce competition in the telecommunications industry, there is currently more than one service provider in most of the sectors within the telecommunications industry. See “B. Business Overview — Competition” below.

History of Unicom Group

     Since its establishment in July 1994, Unicom Group has developed a nationwide cellular network using GSM technology, a nationwide cellular network using CDMA technology and a nationwide long distance telephony network. In May 1997, the State Council granted approval to Unicom Group to provide data services. The former Ministry of Information Industry licensed Unicom Group to begin to provide Internet services in July 1999 and IP telephony services on a trial basis in 12 cities in April 1999 and on a nationwide basis in March 2000.

     Unicom Group currently offers local telephony services in Sichuan Province and the municipalities of Chongqing and Tianjin. It also offers satellite transmission services through its subsidiary, China United Telecommunications Satellite Communication Co. Ltd., or Unisat.

The Restructuring of Unicom Group and Our Initial Public Offering in 2000

     We are a company limited by shares incorporated under the Companies Ordinance of Hong Kong on February 8, 2000. Our registered office and principal executive offices are located at 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong (telephone number: 852-2126-2018).

     Under a reorganization agreement, dated April 21, 2000, between Unicom Group and CUCL, Unicom Group transferred certain of its assets, rights and liabilities to CUCL (which became our wholly-owned operating subsidiary in China) in preparation for our initial public offering, or IPO.

     In June 2000, we successfully completed our IPO, raising approximately US$5.65 billion. Upon completion of our IPO, our shares became listed and traded on The Stock Exchange of Hong Kong Limited and ADSs representing our shares became listed and traded on the New York Stock Exchange.

Further Restructuring of Unicom Group and Initial Public Offering of the A Share Company in 2002

     After our IPO, China Unicom (BVI) Limited, or Unicom BVI, which was a wholly-owned subsidiary of China Unicom (Hong Kong) Group Limited, or Unicom HK, a wholly-owned subsidiary of Unicom Group, directly held 77.47% of our outstanding shares. In October 2002, Unicom Group completed an internal restructuring of its shareholding in our company. Unicom HK transferred the total issued capital of Unicom BVI held by it to Unicom Group and Unicom BVI became a direct wholly-owned subsidiary of Unicom Group. Unicom Group then transferred 51% of its equity interest in Unicom BVI to the A Share Company, a newly established holding company and subsidiary of Unicom Group. The A Share Company’s business is limited to indirectly holding the equity interest of our company without any other direct business operations.

     Following the restructuring, the A Share Company successfully completed its IPO in China and the listing of its ordinary shares on the Shanghai Stock Exchange. After the IPO of the A Share Company, the A Share Company transferred all of its net offering proceeds to Unicom Group in return for an additional 22.84% equity interest in Unicom BVI.

     In accordance with the articles of association of the A Share Company and Unicom BVI, before Unicom BVI votes on certain proposals at our shareholders’ meeting, the A Share Company must first convene a shareholders’ meeting to consider the same proposals in order to direct Unicom BVI to vote the shares in our company indirectly held by the A Share Company through Unicom BVI. Unicom Group can similarly direct the voting in respect of its direct equity interest in Unicom BVI. This mechanism for voting is designed to allow public shareholders of the A Share Company to indirectly participate in our shareholders’ meeting.

     The voting mechanism described above, however, will not apply to the approval process for any connected transactions between us or our subsidiaries and Unicom Group or its subsidiaries, on which Unicom BVI will not be permitted to vote under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, or the HKSE Listing Rules. Instead, our significant connected transactions would require the separate approvals of the public shareholders of each of our company and the A Share Company. According to the two-step voting arrangements we and the A Share Company have established, each connected transaction between us or our subsidiaries and Unicom Group or its subsidiaries will consist of an initial agreement and a further agreement. The initial agreement would be entered into by Unicom Group or its subsidiaries (excluding the A Share Company and its subsidiaries) on the one hand and the A Share Company or Unicom BVI on the other hand. The initial agreement would contain the following terms:

	•		the closing of the initial agreement would be subject to the (i) successful transfer of all rights and obligations of the A Share Company or Unicom BVI under the initial agreement to us or our subsidiaries, and (ii) the approval of the further agreement by our independent shareholders; and
	•		Unicom Group or its subsidiaries (excluding the A Share Company and its subsidiaries) would agree and acknowledge that all rights and obligations under the initial agreement can be transferred to us or our subsidiaries without any further consent requirements.

     The initial agreement will constitute a connected transaction of the A Share Company and, if certain thresholds are met, will require the approval of the public or independent shareholders of the A Share Company under the rules of the Shanghai Stock Exchange. The further agreement would be entered into by the A Share Company or Unicom BVI on the one hand and us or our subsidiaries on the other hand, and will provide for the transfer of all rights and obligations of the A Share Company or Unicom BVI on the one hand under the initial agreement to us or our subsidiaries on the other hand. The further agreement will constitute a connected transaction of our company and, if certain thresholds are met, will require the approval of our public or independent shareholders under the HKSE Listing Rules. We expect, to the extent the nature of a particular connected transaction allows, the two-step voting arrangements to apply as described above. However, when we or our subsidiaries are the providers, rather than recipients, of certain services, the two-step voting arrangements will need to be adjusted so that the process as described above is effectively reversed, such that the initial agreement is entered into by us or our subsidiaries rather than Unicom Group or its subsidiaries (excluding the A Share Company and its subsidiaries) with the A Share Company or Unicom BVI. Accordingly, Unicom Group or its subsidiaries (excluding the A Share Company and its subsidiaries), rather than us or our subsidiaries, will be a party to the further agreement. The arrangements (including the conditions) will apply correspondingly. This two-step structure will be applied in all connected transactions between us and Unicom Group and will effectively require the separate approvals of the public or independent shareholders of each of our company and the A Share Company for such connected transactions.

Acquisitions of Unicom New Century, Unicom New World and Unicom Guizhou and the Sale of Guoxin Paging

     On December 31, 2002, in accordance with the two-step arrangements outlined above, we completed the acquisition from Unicom Group of Unicom New Century, which holds cellular telecommunications businesses (including GSM assets and business and CDMA business) in the following nine provinces, autonomous regions and municipalities in China: Jilin, Heilongjiang, Jiangxi, Henan, Shaanxi and Sichuan provinces, Guangxi Zhuang Autonomous Region, Xinjiang Uygur Autonomous Region and Chongqing municipality. The total purchase price was HK$4,523,181,304, payable in cash.

     On December 31, 2003, we completed the acquisition from Unicom Group of Unicom New World, which holds cellular telecommunications businesses (including GSM assets and businesses and CDMA businesses) in the following nine provinces and autonomous regions in China: Shanxi, Hunan, Hainan, Yunnan, Gansu and Qinghai provinces and Inner Mongolia, Ningxia Hui and Xizang Zang autonomous regions. The total purchase price was HK$3,014,886,000, payable in cash. On the same date, we also completed the sale of the entire equity interests of Guoxin Paging to Unicom Group for a total sale price of HK$2,590,917,656, and such proceeds were applied to our general working capital. In March 2007, Unicom Group obtained approvals from the former Ministry of Information Industry and discontinued the operations of its paging business through Unicom Paging and Guoxin Paging.

     On December 31, 2007, CUCL completed the acquisition from Unicom Group of GSM cellular telecommunication assets and business and

CDMA telecommunication business held by the Guizhou branch of Unicom Group. The total purchase price was RMB880 million, payable in cash. As a result of the acquisitions of Unicom New Century, Unicom New World and Unicom Guizhou, CUCL extended its cellular businesses to all provinces, autonomous regions and municipalities in China.

Mergers of Unicom New Century and Unicom New World into CUCL

     On July 30, 2004, Unicom New Century was merged into CUCL and legally dissolved upon the completion of such merger. On September 1, 2005, Unicom New World was merged into CUCL and legally dissolved upon the completion of such merger.

Acquisition of China Unicom International Limited

     In September 2004, we acquired from Unicom Group of Unicom International, a limited liability company established in Hong Kong engaging in voice wholesale business, telephone cards business, line leasing services, managed bandwidth services and mobile virtual network services. Unicom International’s wholly-owned US subsidiary, China Unicom USA Corporation, or Unicom USA, carries a wholesale business of voice traffic between the United States and mainland China. The total purchase price was HK$37,465,996, payable in cash.

Establishment of Unicom Macau and the Launch of CDMA Services in Macau

     On October 15, 2004, we established China Unicom (Macau) Company Limited, or Unicom Macau, in Macau. In March 2005, Unicom Macau was granted, through a bidding process, a CDMA license with a term up to June 5, 2013, which allows Unicom Macau to provide roaming services and, subject to the Macau government’s further approval, provide CDMA cellular services to local CDMA users in Macau after the first year of its operation. In October 2005, Unicom Macau completed the construction of a CDMA network in Macau and launched CDMA roaming services. On August 14, 2006, Unicom Macau obtained approval from the Macau government to provide CDMA cellular services to local users in Macau. Unicom Macau also received a 3G license on the basis of CDMA2000 technology standard on October 24, 2006 to operate a CDMA2000 network in Macau. In October 2007, Unicom Macau launched the 3G operations in Macau.

Incorporation of Unicom Huasheng

     On July 1, 2005, CUCL and Unicom Xingye Science and Technology Trade Co., Ltd., or Unicom Xingye, a subsidiary of Unicom Group, incorporated Unicom Huasheng. Unicom Huasheng, currently a 99.5%-owned subsidiary of CUCL, is principally engaged in sales of handsets and telecommunications equipment and provision of technical services for us.

Share Segregation Reform of the A Share Company

     On May 11, 2006, the relevant shareholders of the A Share Company approved a proposal by all the holders of the non-tradable shares of the A Share Company, including Unicom Group, to convert their non-tradable shares into shares that are listed and tradable on the Shanghai Stock Exchange. This proposal was made pursuant to and in compliance with the PRC regulations in respect of share segregation reform of companies listed in China. In connection with the conversion of all non-tradable shares into tradable shares, holders of the non-tradable shares transferred to each holder of tradable shares 2.8 non-tradable shares for every ten tradable shares held by such holder as of May 17, 2006. The tradable shares converted from non-tradable shares are subject to certain lock-up restrictions as required by the relevant PRC regulations. As a result of the implementation of this proposal, Unicom Group’s ownership interest in the A Share Company decreased from 69.32% to 60.74%.

     On May 31, 2007, Unicom Group increased its ownership interest in the A Share Company from 60.74% to 61.74% by subscribing for 212,081,265 additional shares of the A Share Company. Pursuant to the lock-up commitment made by Unicom Group, the newly subscribed shares as well as the 1,059,829,820 shares of the A Share Company held by Unicom Group became freely tradable on November 16, 2007 and another 1,059,829,820 shares of the A Share Company held by Unicom Group became freely tradable on May 19, 2008. As of May 31, 2008, Unicom Group held 60.74% ownership interest in the A Share Company and the A Share Company in turn held 82.10% of the total equity interest in Unicom BVI, with the remaining 17.90% held directly by Unicom Group. Unicom BVI held 71.18% of our outstanding shares and Unicom Group remains our ultimate controlling shareholder.

Conversion of the Convertible Bonds Issued to SKT

     In August, 2007, SKT Telecom Co., Ltd., or SKT, converted its US$1 billion zero coupon convertible bonds issued by us into 899,745,075 shares in full at HK$8.63 per share pursuant to the subscription agreement, dated June 20, 2006, between SKT and us. Following the conversion of such convertible bonds, SKT became a holder of a 6.61% ownership interest in our company and, as a result, Unicom BVI’s ownership interest in our company was diluted to 71.43%.

Recent Developments

Proposed Restructuring of the PRC Telecommunications Industry

     On May 24, 2008, the MII, the NDRC and the Ministry of Finance of the PRC jointly issued the “Announcement on Deepening the Reform of the Structure of the Telecommunications Sector”. This announcement states, among other things, that (i) the PRC government will deepen the reform of the structure of the telecommunications sector of the PRC, and encourage the formation of three market competitors where each has nationwide network resources, relatively comparable strength and scale, as well as full service operation capabilities, (ii) the allocation of telecommunications resources will be further optimized and the competition structure will be improved, and (iii) three 3G licences will be granted once the contemplated restructuring of the PRC telecommunications industry has been completed.

Proposed Merger between Us and China Netcom by Way of a Scheme of Arrangement

Joint Merger Announcement

     On June 2, 2008, our board of directors and the board of directors of China Netcom jointly announced that we had formally presented the share proposal, the ADS proposal, and the option proposal described below to the board of directors of China Netcom, and requested the China Netcom board to put forward the proposals to the shareholders of China Netcom to consider a merger between us and China Netcom by way of a scheme of arrangement of China Netcom under Section 166 of the Hong Kong Companies Ordinance, which we refer to as the Scheme or the proposed merger.

Summary of Proposals

     If the Scheme becomes effective, all ordinary shares of China Netcom outstanding at the time and on the date to be set forth in the scheme document, or the Scheme Record Time, and all options to acquire China Netcom shares granted under the share option plan of China Netcom, outstanding at the Scheme Record Time, will be cancelled and immediately thereafter the issued share capital of China Netcom will be increased to the amount of the share capital immediately prior to such cancellation and the Netcom shares resulting from such capital increase will be issued to us. As a result, China Netcom will become our wholly-owned subsidiary and the holders of China Netcom shares, China Netcom ADSs and/or China Netcom options at the Scheme Record

Time will be entitled to the following consideration:

     Share Proposal. Pursuant to the share proposal, each holder of China Netcom shares will be entitled to receive 1.508 of our new ordinary shares for every China Netcom share.

     ADS Proposal. Pursuant to the ADS proposal, each holder of Netcom ADSs will be entitled to receive 3.016 of our new ADSs for every China Netcom ADS. The consideration for the ADS proposal is equivalent to the consideration for the share proposal and is calculated using the exchange ratio for the share proposal and taking into account the number of China Netcom Shares which each China Netcom ADS represents and the number of our shares which each of our ADS represents.

     Option Proposal. Pursuant to the option proposal, we will establish a new option plan, and each holder of China Netcom options will be entitled to receive new options to acquire our shares in exchange for their outstanding China Netcom options (whether vested or not). The grant of these options will be based on a formula that values our new options received by a holder of China Netcom options equivalent to the “see-through” price of that holder’s outstanding China Netcom options.

     Assuming the Scheme becomes effective, based on the 6,699,197,200 China Netcom shares in issue as at the last trading date prior to the joint merger announcement, or the Last Trading Date (assuming that none of the outstanding China Netcom options are exercised), the maximum number of new shares that we will issue in connection with the Scheme is 10,102,389,378. This represents approximately 73.94% of our existing issued share capital of 13,662,075,945 shares as at the Last Trading Date, and approximately 42.51% of our enlarged issued share capital of 23,764,465,323 shares immediately following the issue of the new shares (assuming that none of the outstanding options to acquire our shares granted under our existing share option plans are exercised) and approximately 42.11% of our enlarged issued share capital of 23,993,094,923 shares immediately following the issue of our new shares if all of our outstanding options are exercised.

     Assuming the Scheme becomes effective, based on the 6,825,034,460 China Netcom shares in issue as at the Last Trading Date (assuming that all of the outstanding China Netcom options are exercised), the maximum number of new shares that we will issue in connection with the Scheme is 10,292,151,966. This represents approximately 75.33% of our existing issued share capital of 13,662,075,945 shares as at the Last Trading Date, and approximately 42.97% of our enlarged issued share capital of 23,954,227,911 shares immediately following the issue of our new shares (assuming that none of our outstanding options are exercised) and approximately 42.56% of our enlarged issued share capital of 24,182,857,511 shares immediately following the issue of our new shares if all of our outstanding options are exercised.

Undertakings

     We have obtained irrevocable undertakings from two shareholders of China Netcom, China Netcom Group Corporation (BVI) Limited, or Netcom BVI, in respect of its legal and beneficial shareholding in China Netcom of 4,647,449,014 shares (representing approximately 69.37% of the issued share capital of China Netcom as at the Last Trading Date), and Telefonica International, S.A.U., or Telefonica, in respect of its shareholding in China Netcom of 333,971,305 shares (representing approximately 4.99% of the issued share capital of China Netcom as at the Last Trading Date), to vote in favor of all resolutions to approve the Scheme and any related matters necessary to implement the Scheme.

     In addition, we have been informed that Netcom BVI has received an irrevocable instruction to vote in favor of all resolutions to approve the Scheme and any related matters necessary to implement the Scheme in respect of the 149,683,549 China Netcom shares (representing approximately 2.23% of the issued

share capital of China Netcom as at the Last Trading Date), which Netcom BVI holds as trustee on behalf of a state-owned entity.

     These irrevocable undertakings and the irrevocable instruction lapse in accordance with their respective terms in certain circumstances, including, among other things, in the event of a higher competing offer for China Netcom.

Conditions to the Proposals and the Scheme

     The effectiveness of the proposals and the Scheme is subject to various conditions, including, among other things: (i) the approval of our shareholders for (a) the proposals, (b) the allotment and issue by us of new shares pursuant to the share proposal and the ADS proposal and (c) the adoption of a new option scheme for issuance of options under the option proposal; (ii) the approval of the Scheme by the requisite majority of shareholders of China Netcom at a meeting of the shareholders of China Netcom to be convened at the direction of the High Court of Hong Kong, or the High Court, for the approval of the Scheme; (iii) the passing of a special resolution by the requisite majority of China Netcom shareholders at an extraordinary general meeting of China Netcom to be convened immediately following the High Court meeting for the implementation of the Scheme to (a) approve and give effect to the reduction of the issued share capital of China Netcom by canceling and extinguishing the China Netcom shares and (b) approve the issue of the new China Netcom shares to us; (iv) the sanction of the Scheme (with or without modifications) and the confirmation of the reduction of the share capital of China Netcom by the High Court; (v) the delivery to and registration with the Registrar of Companies in Hong Kong of a copy of the order of the High Court sanctioning the Scheme and confirming the reduction of the share capital of China Netcom, together with related documents; and (vi) other conditions set forth in the joint merger announcement, a copy of which is filed as an exhibit to this annual report on Form 20-F.

Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions

Proposed Disposal of CDMA Business

     On June 2, 2008, we, CUCL, and China Telecom entered into a framework agreement which sets out the key terms and conditions on which we will sell our CDMA mobile telecommunications business to China Telecom. We expect to enter into additional transaction agreements which will set forth detailed terms of this proposed CDMA business disposal. See “B. Business Overview — CDMA Cellular Services” under Item 4, “Operating Results — Revenue” under Item 5 and in “B. Related Party Transactions — Leasing of CDMA Network Capacity” under Item 7 for a discussion of the assets and revenue attributable to our CDMA business.

     Pursuant to the framework agreement, the consideration for the proposed CDMA business disposal is RMB43.8 billion and will be payable by China Telecom to us in cash in three installments. The consideration will be subject to an adjustment mechanism, as set forth in our announcement of our proposed sale of our CDMA business, a copy of which is filed as an exhibit to this annual report on Form 20-F.

     Upon completion of our proposed CDMA business disposal we expect to realize, under HKFRS, an estimated gain before tax and net asset value adjustment of approximately RMB39.3 billion. The estimated gain is recognized as the consideration for the disposition of our CDMA business minus the carrying net asset value of this business as of December 31, 2007. The carrying net asset value of our CDMA business is calculated as the amount of total assets minus the amount of total liabilities of our CDMA business under HKFRS as of December 31, 2007, net of any adjustment at the date of delivery of this business, as may be agreed between us and China Telecom.

     The gain that we will recognize in our income statement under HKFRS could be different from the estimated gain described above due to, among other things, taxes that may be incurred on the disposition of this business, possible adjustments to the consideration in accordance with the adjustment mechanism under the framework agreement, any change in net asset value of this business from December 31, 2007 to the date of delivery, and the fact that the detailed items of the CDMA business will be determined in the detailed transaction documents to be negotiated among us, CUCL and China Telecom.

     We currently expect to allocate the net proceeds from the disposal of our CDMA business for the following purposes: (i) further development of our GSM business to expand GSM network coverage and improve customer service quality, as well as future introduction and implementation of 3G technologies and related businesses if we are granted a 3G license; (ii) reduction in our debt in order to decrease our financing costs; and (iii) funding working capital and other general corporate purposes.

     Our proposed CDMA business disposal is subject to various conditions, including, among other things: (i) approval by our shareholders and the shareholders of the A Share Company; (ii) completion of the disposal by Unicom Group and Unicom New Horizon of their CDMA network on the same date as the completion of our sale of our CDMA business; (iii) receipt of any other regulatory or corporate approvals that are necessary for the completion of the proposed disposition of our CDMA business; and (iv) execution of detailed transaction agreements for the proposed disposition of our CDMA business, including any transitional arrangements. If these conditions are not satisfied or waived on or before December 31, 2008, or such other date as we, CUCL and China Telecom may agree, the framework agreement will automatically terminate.

Related Transactions

     CDMA Network. We have been notified by Unicom Group that, on June 2, 2008, Unicom Group, Unicom New Horizon and China Telecommunications Corporation entered into a framework agreement which sets out the key terms and conditions on which Unicom Group and Unicom New Horizon will sell their CDMA cellular telecommunications network to China Telecommunications Corporation for a consideration of RMB66.2 billion. It is expected that this proposed CDMA network disposal will be completed concurrent with our proposed CDMA business disposal.

     Option Waiver and Lease Termination Agreement. In connection with our proposed CDMA business disposal and the proposed CDMA network disposal, it is expected that an agreement will be entered into between Unicom Group, Unicom New Horizon and the A Share Company pursuant to which the A Share Company will waive or procure CUCL to waive the right to exercise CUCL’s option granted to it under the CDMA lease agreement, dated October 26, 2006, to purchase the CDMA network at any time before December 31, 2008, and the parties will agree to terminate or procure the termination of that lease. For further details on this lease and purchase option, please refer to “B. Business Overview — CDMA Cellular Services — Our Lease of CDMA Networks from Unicom Group” under Item 4 and in “B. Related Party Transactions — Leasing of CDMA Network Capacity” under Item 7.

     Set forth below is our shareholding structure and subsidiaries as of May 31, 2008.

Our Relationship with Unicom Group

     Unicom Group continues to own and manage the international gateways that provide international connections to our long distance network. Unicom Group also continues to operate its local telephony networks in Sichuan Province and Chongqing and Tianjin municipalities, and the satellite transmission networks operated through Unisat.

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

     In connection with the restructuring of Unicom Group and the acquisitions of Unicom New Century, Unicom New World and Unicom International, we entered into a number of agreements with Unicom Group pursuant to the two-step process described in “Further Restructuring of Unicom Group and the Initial Public Offering of A Share Company in 2002” above. These include arrangements for interconnection and roaming services between the telecommunications networks owned by us and Unicom Group and for the provision or sharing of telecommunications and ancillary services and facilities between us and Unicom Group. Unicom Group also retains its interests in its other subsidiaries that provide ancillary services to us, including the procurement of telecommunications equipment and the supply of SIM cards and calling cards. Our existing agreements with Unicom Group were entered into in 2006. See “B. Related Party Transactions” under Item 7 for a detailed description of our agreements with Unicom Group.

     Unicom Group has constructed nationwide cellular networks based on CDMA 1X technology. We entered into lease agreements with Unicom Group to lease a portion of the network capacity and began to offer CDMA cellular services on an exclusive basis in our cellular service areas in early 2002. In October 2006, we entered into a new CDMA lease agreement, effective January 1, 2007, with Unicom Group in respect of the CDMA networks. We also have an option to acquire the CDMA networks from Unicom Group. See “B. Related Party Transactions — Leasing of CDMA Network Capacity” under Item 7.

     On June 2, 2008, we announced plans for a sale of our CDMA mobile telecommunications business to China Telecom. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions.”

Capital Expenditures and Divestitures

     See “Liquidity and Capital Resources — Capital Expenditures” under Item 5 for information concerning our principal capital expenditures for the previous three years and those planned for 2008. We have not undertaken any significant divestitures. On June 2, 2008, we announced plans for a sale of our CDMA mobile telecommunications business to China Telecom. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions.”

B. Business Overview

General

     We are an integrated telecommunications operator in China, offering a comprehensive range of telecommunications services, including cellular, international and domestic long distance, data and Internet services based on our advanced, uniform nationwide network system. We offer nation-wide cellular communications services based on both GSM and CDMA technologies in China. We and China Mobile are currently the two cellular service providers in China.

     Prior to our acquisition of Unicom Guizhou on December 31, 2007, we offered cellular communications services based on both GSM and CDMA technologies in 30 provinces, autonomous regions and municipalities in China. After the acquisition of Unicom Guizhou, our cellular service area encompassed a total of all 31 provinces, autonomous regions and municipalities in China. See “A. History and Development of the Company — Acquisitions of Unicom New World, Unicom New Century and Unicom Guizhou and the Sale of Guoxin Paging” above under this Item 4. Because our acquisition of Unicom Guizhou was accounted for as a combination of entities and businesses under common control, our operating results for each of the years ended December 31, 2005, 2006 and 2007 have been restated to include the operating results of Unicom Guizhou as if Unicom Guizhou had always been part of our company.

     We had a total of 120.56 million GSM cellular subscribers as of December 31, 2007, representing a 12.7% increase from 106.94 million subscribers as of December 31, 2006. Our GSM cellular business accounted for 63.1% of our total revenue for the year ended December 31, 2007. We had approximately 41.93 million CDMA cellular subscribers as of December 31, 2007, representing a 12.4% increase from 37.30 million subscribers as of December 31, 2006. Our CDMA Cellular business contributed 32.8% of our total revenue for the year ended December 31, 2007. At the end of 2007, our market share in terms of the number of subscribers in our cellular service areas was 29.7%, declining from 31.3% at the end of 2006.

     We also provide long distance, data and Internet services in China. These businesses currently represent a relatively small portion of our overall business. Our long distance, data and Internet businesses collectively accounted for 4.1% of our total revenue in 2007, compared to 3.5% in 2006. Outgoing public switched and IP telephony long distance calls totaled 11.16 billion and 12.12 billion minutes, respectively, in 2007, compared to 11.23 billion and 13.13 billion minutes, respectively, in 2006. Incoming international long distance calls (including incoming calls from Hong Kong, Macau and Taiwan) totaled 3.80 billion minutes in 2007, a significant increase from 2.61 billion minutes in 2006. We had 795,000 broadband Internet access subscribers at the end of 2007.

Recent Developments

     As of March 31, 2008, the total number of our GSM subscribers has increased to 124.23 million, including 64.20 million post-paid subscribers and 60.03 million pre-paid subscribers. As of March 31, 2008, we also had a total of 42.81 million subscribers to our CDMA services. For the three months ended March 31, 2008, average minutes of usage, or MOU, per subscriber per month for GSM and CDMA services in our combined service areas were 242.4 minutes and 238.4 minutes, respectively. ARPU for GSM services in our combined service areas was RMB44.3 for the three months ended March 31, 2008. ARPU for CDMA services in our combined service areas was RMB53.3 for the three months ended March 31, 2008. For the three months ended March 31, 2008, outgoing public switched and IP telephony long distance calls totaled 2.09 billion minutes and 0.06 billion minutes, respectively.

     On June 2, 2008, our board of directors and the board of directors of China Netcom jointly announced proposals of a merger of Unicom and China Netcom by way of a scheme of arrangement of China Netcom and on the same date, we, CUCL and China Telecom entered into a framework agreement to sell our CDMA business to China Telecom. See “A. History and Development of the Company — Recent Developments” under Item 4.

Cellular Services

     Our cellular business is our largest business, with our GSM and CDMA businesses together having contributed 95.9% of our total revenue in 2007.

     We offer both GSM and CDMA cellular services. We also offer GSM international roaming services in conjunction with 283 operators in 179 countries and regions and CDMA international roaming services in conjunction with 25 operators in 17 countries and regions.

     In 2004, we began to offer GSM and CDMA dual mode cellular handset service under the brand name “Worldwind.” In April 2005, we launched “Worldwind” dual-mode card service. In 2006, we introduced the “dual-standby” technology into our “Worldwind” services and now offer “dual-mode, dual-standby” services under the brand name “Worldwind.” In 2007, we launched the “Worldwind 156” GSM service package with featured phone numbers to target mid- to high-end customers.

     In October 2005, we launched our CDMA network in Macau to provide roaming services for all CDMA users in Macau. In 2006, we obtained approval from the Macau government to provide CDMA services to local users in Macau and also received a 3G license to operate a CDMA 2000 network in Macau. In October 2007, we launched the 3G operations in Macau to provide cellular services to Macau residents.

     We also offer a broad range of value-added services, or VAS, to our cellular subscribers, including short message services, or SMS, personalized ring-back tone services, CDMA 1X wireless data services and GSM wireless data services, under the integrated business brand of “uni,” which represents various wireless VAS we offer for our cellular subscribers. The proportion of our total cellular service revenue generated from VAS increased significantly from 19.3% in 2006 to 22.0% in 2007.

GSM Cellular Services

     Our GSM cellular networks reach all cities, county centers, major towns, major highways and railways in our cellular service areas. We continue to selectively deploy GSM systems that operate in the 1800 MHz frequency band in high-density population and high call volume centers to supplement our GSM networks operating in the 900 MHz frequency band. In 2007, we continued to focus on optimizing the operational efficiency and stability of our GSM networks, and will continue to improve our GSM networks to support the development of our various cellular services. In particular, we started to upgrade our GSM networks to launch general packet radio service, or GPRS, services since 2005. On May 17, 2007, we launched the commercial operation of GPRS services in 70 cities on a trial basis and as of the end of 2007, our formal GPRS operations covered 221 cities. We plan to continue and expand our GPRS upgrade to additional cities in 2008.

Post-paid Services and Pre-paid Services

     We offer two main categories of GSM cellular services: post-paid and pre-paid services that target different consumer segments. Generally, we promote our pre-paid services to migrant population and temporary residents as well as mass market subscribers and target our post-paid services at consumers who have relatively high usage of telecommunications services.

     Subscribers and Usage

     The following table sets forth selected historical information about our GSM cellular operations and our subscriber base for the periods indicated.

														CUCL(4)(5) as of
														or for the three
		CUCL(4) (5) as of or for												months ended
		the year ended December 31,												March 31,
		2005				2006				2007				2008
Number of subscribers (in thousands)			95,879				106,937				120,564				124,225
Post-paid			48,863				55,223				62,474				64,195
Pre-paid			47,016				51,714				58,090				60,030
Estimated market share in our service areas(1)			23.5	%			23.2	%			22.0	%			22.2	%
Average minutes of usage per subscriber per month(2)			202.9				237.8				250.1				242.4
Average revenue per subscriber per month (in RMB)(3)			48.5				49.2				46.0				44.3
SMS Volume (in billions)			39.79				59.26				72.94				19.22

     Subscriber Increase: As of December 31, 2007, our total number of GSM subscribers increased from 106.94 million as of December 31, 2006 to 120.56 million, including 62.47 million post-paid subscribers and 58.09 million pre-paid subscribers. We believe that this growth was attributable to a number of factors, including, among others, (i) continued growth of the Chinese cellular telecommunications market, driven by economic growth and reduction in the cost of cellular handsets and services, (ii) our sales and marketing efforts in retaining existing subscribers and expanding our subscriber base, (iii) relatively competitive pricing of our services and (iv) quality of our customer service. However, our share of the cellular market in terms of total cellular subscribers in our GSM cellular service areas was 22.0% as of December 31, 2007, as compared with 23.2% as of December 31, 2006.

     MOU and ARPU: MOU and ARPU of our GSM services were 341.41 billion minutes and RMB46.0, respectively, in 2007. The average MOU per subscriber per month was 250.1 minutes in 2007, an increase of 12.3 minutes from 237.8 minutes in 2006. The increase in MOU was attributable to increased competition with our competitors, which resulted in the provision of more call minutes in the package service plans offered to subscribers. The decreasing effective tariffs as a result of such competition as well as the new “calling-party-pays” policy also encouraged higher usage by subscribers. ARPU of our GSM services decreased from RMB49.2 in 2006 to RMB46.0 in 2007, which was attributable to the generally decreased tariffs due to the new “calling-party-pays” policy which was partially offset by the increased MOU, certain subscribers’ discontinuance of service contracts after the expiration of certain handset subsidy plans and the intensified competition in the cellular telecommunications market.

     Churn Rate: In 2007, the monthly average churn rate for our GSM services increased from 2.47% in 2006 to 2.76% primarily as a result of intensified competition and the fact that a larger portion of our new GSM subscribers are low- to mid-end subscribers. Our calculation of churn rate reflects those subscribers who switch to services of other operators and those whose services we terminate as a result of account inactivity or payment delinquency. If competition continues to intensify, our churn rate from subscribers voluntarily discontinuing our services may further increase in the future.

     Payment Delinquency: Payment delinquency increased in 2007. As of December 31, 2007, the doubtful debt ratio for our GSM cellular services, calculated as the amount of doubtful debt provided in 2007 divided by revenue from GSM cellular services, is 2.0%, slightly higher than the 1.9% at the end of 2006 due to the fact that a larger portion of our new GSM subscribers are low- to mid- end subscribers. In some of our cellular service areas we require our post-paid subscribers to deposit service charges and maintain a certain level of account balances with us or with commercial banks that collect service fees for us. We classify the creditworthiness of our subscribers into various levels and have adopted other credit control measures. We also closely manage payment delinquencies through confirmation of customer address and other registration information, expansion of collection channels, advance notification of inadequate deposits, close monitoring of call patterns and account balances and prompt termination of services.

      Tariffs

     Generally the categories of tariffs we charge our cellular subscribers include, among others, basic monthly fees, usage charges, roaming charges, long-distance call charges and charges for value-added services.

     The cellular tariffs are set forth by the MII and tariff adjustments are subject to regulation by various government authorities, including the MII, the NDRC and the relevant provincial price regulatory authorities. The following table summarizes the present State-guidance tariff rates for post-paid and pre-paid cellular services:

		Post-paid Services				Pre-paid Services
		RMB				RMB
Basic monthly fee			50				0
Local usage charge (per minute)			0.4				0.6
Domestic roaming charge (per minute)		0.6 for caller				0.6 for caller
		0.4 for receiver				0.4 for receiver

     Intense competition in our cellular service areas has resulted in tariff discounts and service promotions offered by both us and our main competitor from time to time, which may lower effective tariffs. These discounts and promotions have taken many forms, including promotional tariff rates, free call minutes, reduced roaming charges, off-peak discounts or discounts for high-usage subscribers and package service plans with fixed monthly fees. See “D. Risk Factors — Risks Relating to the Telecommunications Industry in China — Regulatory or policy changes relating to the PRC telecommunications industry or any future industry restructuring may materially adversely affect our financial condition, results of operations and growth prospects” under Item 3.

     We have introduced a number of package service plans. Under these plans, subscribers typically pay a fixed monthly fee for a specified number of call minutes. The plans vary in the level of the fixed monthly fee, the number of specified call minutes and the tariff rates for call minutes in excess of the specified call minutes. The terms of these plans also vary depending on the local markets and generally offer some price discounts to similar plans of our main competitor. We have also introduced in selected cities promotional plans for certain qualified subscribers, which allow such subscribers to receive incoming calls without incurring per-minute usage charges in exchange for a fixed monthly fee.

     In 1997, the PRC government granted us preferential treatment by allowing us to reduce our tariffs by up to 10% below the State-guidance tariff rates. In the past, this preferential treatment has helped us

capture a significant number of cellular subscribers by allowing us to market our cellular services at discounted rates. As we and our main competitor introduced various package service plans and other promotional programs, the tariff structure has become more complex. While we continue to maintain tariff levels that are generally lower than those of our main competitor, the more complex tariff structure has, to some extent, made our price advantages less obvious to subscribers compared to previous tariff schemes that were largely based on simple per-minute charges. Beginning in 2005, as we continued to offer package service plans in our service areas, we have taken a series of actions to optimize our tariffs structure. These efforts include ceasing to provide unprofitable or less competitive package plans and reducing the variety of the package plans.

     In 2007, the former Ministry of Information Industry started implementing “calling-party-pays” billing arrangements. In light of this regulatory change, we began to implement such billing arrangements in the tariff packages offered throughout our service areas after July 1, 2007.

     In February 2008, the former Ministry of Information Industry and the NDRC jointly promulgated the Tariff Notice to require, among other things, unifying domestic roaming charges with charges for long distance calls made during domestic roaming, unifying the charges for the pre-paid and post-paid mobile subscribers, and setting different tariff caps for callers and receivers in the context of domestic roaming.

      CDMA Cellular Services

     Our controlling shareholder, Unicom Group, currently has the exclusive license to offer CDMA cellular services in China. It has constructed a CDMA network with comprehensive nationwide coverage through its wholly-owned subsidiary, Unicom New Horizon. We have leased CDMA network capacity from Unicom Group and offer CDMA cellular services and CDMA 1X wireless data services.

     As of December 31, 2007, Unicom Group’s total CDMA network exchange capacity and wireless capacity amounted to approximately 51.40 million and 94.00 million subscribers, respectively. Compared to the CDMA subscriber base of 41.93 million as of December 31, 2007, this level of capacity provides sufficient room for the growth of our CDMA subscriber base and ensures our CDMA nationwide network coverage and telecommunications quality, including both outdoor and indoor coverage, as well as the data-processing capacity of our CDMA 1X services.

      Our Lease of CDMA Networks from Unicom Group

     After the acquisitions of Unicom New Century and Unicom New Horizon, we entered into a consolidated lease agreement, or the 2005 CDMA Lease, with Unicom Group and Unicom New Horizon on March 24, 2005 to replace the three then-existing lease agreements, or the Old CDMA Leases, between Unicom Group and Unicom Horizon on the one hand, and CUCL, Unicom New Century and Unicom New World, respectively, on the other hand. On October 26, 2006, we entered into a further updated lease agreement, or the 2006 CDMA Lease, with Unicom Group and Unicom Horizon, to replace the 2005 Lease Agreement. On June 29, 2007, we extended the 2006 CDMA Lease for another year until December 31, 2008. The lease fee for 2007 was 31% of the audited service revenue generated in 2007 by our CDMA business, or RMB 8.4 billion, and the lease fee for 2008 will be (i) 31% of the audited service revenue generated in 2008 by our CDMA business or (ii) 30% of the audited service revenue generated in 2008 by our CDMA business if the audited income before taxation of our CDMA business for 2008 is less than the audited income before taxation of our CDMA business for 2006. The term of the 2006 CDMA Lease may be renewed for additional terms after December 31, 2008 at our option, with the length of such renewed terms and lease fee to be agreed upon. See “B. Related Party Transactions — Leasing of CDMA Network Capacity” under Item 7.

     We lease all constructed CDMA network capacity from Unicom Group and operate these CDMA networks in our cellular service areas on an exclusive basis and receive all revenue generated from the operation. We may terminate the lease arrangements upon giving at least 180 days’ prior written notice to Unicom Group.

     In addition to leasing network capacity, we also have the option, exercisable at any time during the lease period and for an additional year thereafter, to purchase the CDMA network in our cellular service areas. The acquisition price will be negotiated between Unicom New Horizon and us. It will be based on the appraisal value of the CDMA network determined by an independent appraiser in accordance with applicable PRC laws and regulations and take into account the then-prevailing market conditions and other factors. However, the purchase price will not exceed an amount which would, taking into account all lease fee payments made by us to Unicom New Horizon and lease fee discounts as a result of any delay of delivery, enable Unicom New Horizon to recover its total network construction costs and to achieve an internal rate of return of 8%. The exercise of the purchase option will be subject to the relevant PRC laws and regulations and the HKSE Listing Rules, including approvals of our minority shareholders for connected transactions. See “B. Related Party Transactions — Leasing of CDMA Network Capacity” under Item 7 for a more detailed description of the 2006 CDMA Lease.

     On June 2, 2008, we, CUCL and China Telecom entered into a framework agreement to sell our CDMA business to China Telecom. In addition, we have been notified by Unicom Group that, on June 2, 2008, Unicom Group, Unicom New Horizon and China Telecommunications Corporation entered into a framework agreement, which sets out the key terms and conditions on which Unicom Group and Unicom New Horizon will sell their CDMA cellular telecommunications network, to China Telecommunications Corporation. In connection with our proposed CDMA business disposal and the proposed CDMA network disposal, it is expected that an agreement will be entered into between Unicom Group, Unicom New Horizon and the A Share Company pursuant to which the A Share Company will waive or procure CUCL to waive the right to exercise CUCL’s option granted to it under the 2006 CDMA Lease, to purchase the CDMA network at any time before December 31, 2008, and the parties will agree to terminate or procure the termination of that lease. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions — Proposed Disposal of CDMA Business” under Item 4.

      Services

     The CDMA services we offer include basic voice and value-added services such as call forwarding and voicemail, caller identity display, SMS services and CDMA 1X wireless data services. Like our GSM services, our CDMA services also offer both post-paid and pre-paid services.

     In August 2004 and April 2005, we launched CDMA and GSM dual-mode cellular handset and card services, respectively, under the brand name “Worldwind.” In 2006, we further integrated “dual-standby” technology into our services to launch the “dual-mode, dual-standby” services. “Worldwind” “dual-mode, dual-standby” services, which are available to our subscribers who use either a “dual-mode, dual-standby” handset or a “dual-mode, dual-standby” user card, have the following features:

	•		users can switch between GSM and CDMA networks in China, thereby offering wireless coverage in areas of the country covered by only one of these networks;
	•		when roaming in areas outside of China, users can use the cellular services of local operators, whether they are GSM or CDMA, who signed roaming agreements with us; and

•

our GSM users who sign up for “Worldwind” can continue to use the basic GSM services, while enjoying the additional benefits of the CDMA 1X services.

      Subscriber Base

     The following table sets forth selected historical information about our CDMA cellular operations and our subscriber base for the periods indicated.

														CUCL(4)(5) as of
														or for the three
		CUCL(4)(5) as of or for												months ended
		the year ended December 31,												March 31,
		2005				2006				2007				2008
Number of subscribers (in thousands)			33,465				37,302				41,927				42,809
Post-paid			30,742				34,263				38,622				39,478
Pre-paid			2,723				3,040				3,305				3,331
Estimated market share in our service areas(1)			8.9	%			8.1	%			7.7	%			7.4	%
Average minutes of usage per subscriber per month(2)			279.3				276.7				263.0				238.4
Average revenue per subscriber per month (in RMB)(3)			74.9				65.8				58.1				53.3
SMS Volume (in billions)			15.24				17.03				19.17				5.1

     As of December 31, 2007, our total CDMA subscriber base reached 41.93 million, representing an increase of 12.4% from 37.30 million subscribers at December 31, 2006. Among the total CDMA subscribers, post-paid subscribers increased by 12.7% from 34.26 million as of December 31, 2006 to 38.62 million as of December 31, 2007, while pre-paid subscribers increased by 8.7% from 3.04 million as of December 31, 2006 to 3.31 million as of December 31, 2007. We believe the growth in our CDMA subscriber base was primarily attributable to:

	•		increased brand awareness and our distribution and marketing efforts;
	•		decreased retail sale prices of and the availability of more varieties of CDMA handsets as a result of our centralized purchasing policy;
	•		the overall competitiveness of our network coverage and quality; and
	•		the advantages of the CDMA technology, including the lower radio transmitting power of CDMA handsets as compared to GSM handsets, better voice quality and enhanced security.

      MOU, ARPU and Churn Rate

     In 2007, total MOU for our CDMA services was 125.43 billion minutes, an increase of 6.9% from 117.32 billion minutes in 2006, and ARPU for our CDMA services was RMB58.1, a decrease from RMB65.8 in 2006. Average MOU per subscriber per month for our CDMA services was 263.0 minutes, 5.2% higher than the average MOU of 250.1 minutes for GSM services, while our RMB58.1 CDMA

ARPU was 26.3% higher than the RMB46.0 ARPU for our GSM subscribers. The decrease in MOU for our CDMA services in 2007 was mainly because certain subscribers switched to less expensive packages with less usage coverage upon the expiration of their existing monthly plans. The decrease in ARPU for our CDMA services in 2007 was attributed to lower revenue from existing high-end customers who no longer needed to pay for incoming calls as before due to the implementation of the new “calling-party-pays” tariff policy, the relatively low ARPU of the new mass customers, intensified market competition and regional promotional activities that led to a decline in effective tariffs, as well as switches to less expensive plans by some contractual subscribers using high-end handsets upon the expiration of their previous handset subsidy packages.

     The monthly average churn rate for our CDMA services is calculated in the same way as the churn rate for our GSM services. The churn rate for our CDMA services was 2.04% in 2007, higher than 1.62% in 2006, but significantly lower than the churn rate of 2.76% for our GSM services in 2007. The increase of the churn rate for our CDMA services was due to competition from other service providers, the increase in the proportion of cost-sensitive subscribers among new subscribers and discontinuance of some contractual subscribers upon expiration of their contract period.

      Payment Delinquency

     As of December 31, 2007, the doubtful debt ratio for our CDMA cellular services, calculated as the amount of provision for doubtful debt divided by revenue from CDMA cellular services, stood at 1.2%. In 2007, we continued to take various measures to control payment delinquency for our CDMA services, which measures are similar to the ones taken to control payment delinquency for our GSM services. See “B. Business Overview — Cellular Services — GSM Cellular Services — Payment Delinquency” under this Item 4.

      Tariffs and Promotion

     The tariff rates for our CDMA services are generally the State-guidance rates for cellular services without the 10% discount we are permitted to adopt for GSM services. However, we have adopted other promotional programs. Generally we charge our CDMA subscribers the following categories of tariffs: basic monthly fees, local usage charges, roaming charges, long-distance call charges and VAS service charges.

     To accelerate the growth in our CDMA subscriber base, we have been offering CDMA handset promotion packages since the second half of 2002, providing discounts towards our customers’ CDMA handset purchase prices on the basis of their committed minimum amount of monthly service fees. Our promotion packages are offered in a wide price range to target users in different segments. In addition, we offer differentiated services with various combinations of voice and VAS services to effectively target various market sectors. Moreover, we established a subsidiary, Unicom Huasheng, in 2005 to centralize the purchases and distribution of CDMA handsets to control the costs of our CDMA promotion packages.

     See “D. Risk Factors — Risks Relating to Our Business — Our CDMA services may remain in a relatively disadvantageous market position as compared to GSM services in China.” under Item 3.

      Value-added Services

     By leveraging our integrated telecommunications operations and advanced network system, we offer a broad range of value-added cellular services under a uniform business brand of “uni,” including SMS, personalized ring-back tone services, wireless Internet services and other wireless information services. Our value-added services continued to achieve rapid growth in 2007.

     The volume of our SMS continued to increase rapidly in 2007. A total of 92.11 billion short messages were transmitted by our GSM and CDMA subscribers in 2007, an increase of 20.7% over 2006. Our SMS services mainly include the following: SMS transmission and receipt through handsets, service provider-assisted SMS, business SMS platform, voice SMS and other information services. We continue to promote the use of SMS as a convenient and cost effective method of business and personal communication. The SMS platforms of our GSM and CDMA networks are interconnected with each other. Our SMS platforms are also interconnected with the SMS platforms of China Mobile’s GSM network, China Telecom’s “Little Smart” network, and China Netcom’s “Little Smart” network.

     We market our personalized ring-back tone service under the brand name “Cool Ringtone.” This new value-added service has maintained a high growth rate since its introduction. As of December 31, 2007, we had a total number of 50.13 million subscribers to our Cool Ringtone service, representing 30.9% of the number of our total cellular subscribers as of December 31, 2007.

     We offer nationwide GSM wireless data services under the uniform business brand of “uni.” The “uni” services are based on a nationwide wireless information services platform and offer a variety of services including games, downloads and other entertainment services, information and notification, personal information management and transactions services. On May 17, 2007, we launched the commercial operation of GPRS services in 70 cities on a trial basis and as of the end of 2007, our formal GPRS operations covered 221 cities. We plan to continue to expand our GPRS upgrade to additional cities in 2008.

     We also offer CDMA 1X wireless value-added services under the brand of “uni,” with individual services offered under various sub-brands, including “U-Info,” “U-Net,” “U-Mail,” “U-Magic,” “U-Map” and “Uni-Web.” In 2007, we continued to focus our efforts on promoting CDMA 1X wireless value-added services in three areas: (1) increasing market penetration, (2) easing the handset supply bottleneck by centralizing the purchase and distribution of CDMA handsets and (3) offering new services and service contents to activate more market demand. By the end of 2007, we had 21.42 million subscribers to CDMA 1X wireless value-added service, representing an increase of 4.6% over 2006.

     In 2007, in order to further develop our value-added services, we continued to implement a brand-centric development strategy and adopted the following measures:

	•		through the improvement of the value-added services, more staff training, advertising and promotions, trial programs and our various other efforts, we strengthened marketing efforts for our value-added services under the uniform business brand of “uni”;
	•		we improved the content of our value-added services, through strengthening service support of and cooperation with content providers and service providers, in order to increase the appeal of these services;
	•		we improved the quality of our value-added services by strengthening certain customer protection measures, such as requiring service providers to obtain re-confirmation from the subscribers before they activate the service and to provide subscribers trial periods before the service provider starts to charge for the service;
	•		we continuously enlarged the competitiveness of “U-Net” Internet access service, actively promoted new services such as “Stock in Palm” stock trading services, mobile music and point-to-point “Color Mail” multimedia message services and increasingly diversified the application of our value-added services;

	•		we procured through Unicom Huasheng custom-made CDMA handsets with certain features integrated to support our differentiated value-added services, such as “Stock in Palm” and “U-Net”;
	•		we actively developed value-added services specifically catering to the youth and campus markets to increase the market share of our “U-Power” services;
	•		we targeted mid- to high-end subscribers by emphasizing the technological advantages of “dual-mode, dual-standby” services to facilitate the development of our “Worldwind” CDMA and GSM dual mode services and our CDMA 1X data services; and
	•		through cooperation with partners in specific industries, we launched applications such as “SAIC Enforcement Horizon,” “Maritime Horizon,” “Agriculture Horizon,” “Police Horizon” and “Sales Tracker” to extend corporate and industry applications to governmental and various industrial customers in markets such as maritime and agriculture. For example, we recently introduced the “Sales Tracker” application to offer tailored wireless services to retail stores and suppliers. This service enables retail stores and suppliers to timely communicate sales information through the tailored SMS services and to efficiently manage sales, supplies logistics and other service. In addition, we also expanded the application of our CDMA 1X data services among institutional customers by providing wireless information solutions and extending the application of such solutions to the mobile users.

     We have designed and implemented a fee structure under which we earn transmission fees from the use of our GSM and CDMA value-added services and charge a certain percentage of information service fees for the billing and collection services we provide to content providers and service providers.

     On June 2, 2008, we, CUCL and China Telecom entered into a framework agreement to sell our CDMA business to China Telecom. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions — Proposed Disposal of CDMA Business” under Item 4.

Cooperation with SKT

     On June 20, 2006, we entered into a strategic alliance framework agreement with SKT, a mobile telecommunications service provider in Korea. Pursuant to this agreement, we and SKT agreed to explore cooperation initiatives on the further development of CDMA cellular communication services in China. In addition, pursuant to this agreement, if SKT and/or any of its affiliates, individually or collectively, hold more than 5% of our issued share capital, SKT will be entitled to nominate a representative to our board of directors. Following its conversion of US$1 billion zero coupon convertible bonds into our shares in August 2007, SKT held more than 5% of our share capital and has nominated Mr. Lee Suk Hwan as a non-executive director. See “Directors and Senior Management” under Item 6. SKT has undertaken to cause such director to resign if it and/or its affiliates, individually or collectively, hold no more than 5% of our issued share capital for a period of three months.

Long Distance, Data and Internet Services

     We offer international and domestic long distance services in China based on both the PSTN standard and the IP telephony standard. We leverage our ability to integrate our long distance services with a broad range of services to target different customer segments. For example, we have developed a nationwide video conferencing network that reaches hundreds of cities. In addition to long distance

services, we also offer data and Internet services throughout China. Our long distance, data and Internet services are supported by our advanced and unified nationwide network system.

     The following table sets forth the total number of outgoing call minutes for our long-distance services, leased bandwidth of our data services and number of dedicated access subscribers of Internet services for the periods indicated.

		As of or for the year ended December 31,
		2005				2006				2007
Public switched telephony (in billions of minutes):
Domestic			10.33				11.07				10.98
International			0.15				0.16				0.18
Total			10.48				11.23				11.16
IP telephony (in billion of minutes):
Domestic			14.60				13.02				12.02
International			0.13				0.11				0.10
Total			14.73				13.13				12.12
Data Services
Bandwidth leased to customers (2Mbps)			8,706				7,428				8,319
Internet Services
Dedicated access subscribers			38,000				31,350				22,586

      Public Switched Telephony Services

     We offer PSTN services to business and residential customers who register their telephone numbers with us. They can access our services by dialing a prefix of “193.” We also distribute pre-paid long distance calling cards that purchasers can use to access our services by dialing a prefix of “193300.” For some corporate and government customers, we also offer our public switched long distance services over dedicated lines, frequently as part of our integrated offerings of long distance and data services.

     The following table sets forth selected information about our PSTN services for the periods indicated.

		As of or for the year ended on December 31,
		2005				2006				2007
Number of cities reached			330				330				330
Minutes of outgoing long distance calls (in billions)			10.48				11.23				11.16
Market share of outgoing long distance call minutes (1)			11.57	%			11.55	%			10.86	%
Minutes of incoming international calls (in billions)			2.34				2.39				3.38

     Starting from October 2005, the PRC government regulates the tariff rates for PSTN services by setting the maximum tariff rates. The following table sets forth our present tariff rates (including rates applicable to domestic and international long distance calls made by our cellular subscribers):

		Maximum Tariff Rates				Preferential Rates
		RMB per six seconds				RMB per six seconds
Public switched Domestic Long Distance:			0.06				0.03
Public switched International Long Distance:
To Hong Kong, Taiwan and Macau			0.18				0.15
To all other international destinations			0.72				0.38

     Since 2001, we adjusted the discount rates set forth in the table above as follows:

	•		RMB0.04 per six seconds every day from 8pm to 10pm;
	•		RMB0.03 per six seconds every day from 10pm to 7am of the following day; and
	•		RMB0.04 per six seconds on public holidays and weekends from 7am to 8pm.

     Settlement of outgoing and incoming international calls with international operators is conducted through negotiated contracts with such individual international operators, which contracts must be approved by the MII.

     IP Telephony Services

     We offer domestic and international long distance IP telephony services through interconnection of our IP network with the Internet and other telecommunications networks based on a manageable IP network configuration to enhance service quality. The following table sets forth selected information about our IP telephony services for the periods indicated.

		As of or for the year ended December 31,
		2005				2006				2007
Number of cities reached			335				337				337
Minutes of outgoing IP telephony calls (in billions)			14.73				13.13				12.12
Minutes of incoming international calls (in billions)			0.25				0.22				0.42

     In February 2001, the PRC government ceased regulatory control of tariffs for IP telephony long distance calls and allowed operators to set their own rates. In June 2007, we adjusted the tariff rates for international IP telephony services for certain countries and regions. The following table sets forth our present tariff rates for our IP telephony services (including rates applicable to IP long distance calls made by our cellular subscribers):

		Our Tariff Rates (RMB)
IP Telephony Domestic Long Distance		0.30 per minute
IP Telephony International Long Distance
To Hong Kong, Taiwan and Macau		1.50 per minute
To U.S. and Canada (excluding countries or regions with an country code “1” other than Alaska and Hawaii)		2.40 per minute
To United Kingdom, France, Italy, Germany, South Korea, Japan, Australia, Singapore, Malaysia, Thailand, Indonesia, Philippines and Vietnam		3.60 per minute
To Belgium, New Zealand, Turkey, Sri Lanka, Belarus, Poland, Tajikistan, Switzerland		8 per minute
To Pakistan, Jordan, Turks and Caicos Islands, Tunis, Eygpt, Nicaragua, Kyrgyzstan		12 per minute
To Papua New Guinea, Qatar, Kenya, Guinea, Mali, Marshall Islands, Greenland, North Korea		15 per minute
To other international destinations		4.6 per minute

     Data Services

     We currently provide data services in 328 cities in China. We target high volume users of integrated voice, data and video communications and offer them data services as part of our integrated

offerings of long distance, data and Internet services. Our target customer groups include government offices, financial institutions, multinational or multi-regional corporations, large- and medium-sized enterprises in China, as well as Internet service providers and Internet content providers that provide telecommunications services. As of December 31, 2007, the total leased bandwidth of our asynchronous transfer mode, or ATM, data service and frame relay, or FR, data service was 8,319 x 2 Mbps.

     Our data service offerings mainly consist of broadband and managed data services, including:

	•		FR services, which provide high speed and cost effective data communications services linking remote business sites using FR technology;
	•		ATM services, which employ ATM technology and are able to handle high bandwidth, integrated voice, video, data and Internet traffic; and
	•		Broadband video-conferencing and video-telephony services, which are provided under the brand name of “Uni-Video.” These services currently include video-conferencing, video-telephony, video conference room leasing and video public telephony services. These services are based on our existing unified data network platform. Two or more users can use our video-conferencing services by connecting to the Internet or our video network through video-conferencing terminals or computer terminals.

     The following table sets forth selected information about our data services for the periods indicated.

		As of December 31,
		2005				2006				2007
Number of cities reached			325				325				325
Bandwidth leased to customers (x 2Mbps)			9,007				7,428				8,319

     We provide data services through an advanced, unified nationwide network system, the backbone of which is our advanced nationwide fiber optic transmission network. This network is the second largest fiber optic transmission network in China. We have also built metropolitan area networks in many cities throughout China. These networks provide local transmission capacity for our different services. See “— Networks — Transmission Network” below.

     We believe that our ability to offer integrated access to customers’ premises is important to the success of our data services. We continued to build integrated access networks linking major office buildings to our networks in major cities in 2007. See “— Networks — Long Distance, Data and Internet Networks” below.

     Our charges for ATM and FR services include one-time, up-front charges for installation materials (currently RMB500 per circuit or port for ATM services and RMB300 per circuit or port for FR services) and testing (currently RMB500 per circuit or port for ATM services and RMB300 per circuit or port for FR services), a monthly port fee and a monthly circuit fee. Our tariff charges are generally offered at a 10% discount from the State-guidance tariffs.

     The following table sets forth our tariff rates for monthly port fees for FR data services of selected bandwidths.

FR Services Port Fee (RMB per month)
Bandwidth (bps)				Port Fee
	64k				260
	128k				300
	256k				400
	384k				450
	512k				500
	768k				650
	1M				750
	2M				1,000

     The following table sets forth our tariff rates for monthly permanent virtual circuit (PVC) fees for FR data services of selected bandwidths and selected distance categories.

Bandwidth		FR Services PVC Fee (RMB per month)
																						International
		Local				Local				Domestic				Hong Kong, Macau &				International				long distance
		(intra-district)				(inter-district)				long distance				Taiwan				long distance (Asia)				(outside of Asia)
8kbps			290				440				990				1,550				8,800				9,400
16kbps			390				540				1,190				1,800				10,000				10,500
32kbps			450				650				1,300				2,000				11,500				11,500
48kbps			500				750				1,500				2,300				13,000				13,500
64kbps			550				800				1,700				2,600				14,500				14,600
128kbps			700				1,000				2,100				3,400				18,000				18,400
256kbps			800				1,150				2,200				3,500				19,000				19,600
384kbps			850				1,350				2,300				3,800				20,000				20,500
516kbps			1,000				1,450				2,500				4,100				22,300				23,100
768kbps			1,150				1,600				2,700				4,600				25,800				26,550
1Mbps			1,250				2,000				3,000				5,200				28,900				30,050
2Mbps			1,500				2,200				4,000				7,000				39,000				39,000

     The following table sets forth our tariff rates for monthly port fees for ATM services of selected bandwidth.

ATM Services Port Fee (RMB per month)
Bandwidth				Port Fee
	256K				400
	512K				500
	1M				750
	2M				1,000
	4M				2,000
	6M				3,000
	8M				4,000
	10M				5,000
	12M				6,000
	34M				7,000
	45M				8,000
	100M				9,000
	155M				10,000

     The following table sets forth our tariff rates for monthly circuit fees for ATM data services of selected bandwidths and selected distance categories.

		ATM Services Circuit Fee (RMB per month)
																						International
		Local				Local				Domestic				Hong Kong, Macau &				International				long distance
Bandwidth		(intra-district)				(inter-district)				long distance				Taiwan				long distance (Asia)				(outside of Asia)
256Kbps			800				1,150				2,200				3,500				19,000				19,600
512Kbps			1,000				1,450				2,500				4,100				22,300				23,100
1Mbps			1,250				2,000				3,000				5,200				28,900				30,050
2Mbps			1,500				2,200				4,000				8,000				39,000				39,000
4Mbps			2,000				3,000				6,000				12,900				72,200				72,200
6Mbps			2,500				5,500				9,000				19,800				105,400				105,400

		ATM Services Circuit Fee (RMB per month)
																						International
		Local				Local				Domestic				Hong Kong, Macau &				International				long distance
Bandwidth		(intra-district)				(inter-district)				long distance				Taiwan				long distance (Asia)				(outside of Asia)
8Mbps			3,500				8,500				12,000				26,700				138,700				138,700
10Mbps			5,000				11,500				15,500				30,600				157,800				157,800
15Mbps			7,000				15,000				22,000				40,000				205,000				205,000
20Mbps			7,500				17,500				29,000				49,000				252,300				252,300
25Mbps			8,000				21,000				36,000				59,000				300,000				300,000
30Mbps			9,000				24,000				42,000				69,000				348,500				348,500
40Mbps			10,000				29,000				52,000				88,500				416,000				416,000
50Mbps			10,500				32,000				60,000				108,200				486,600				486,600
60Mbps			11,000				33,000				68,000				122,600				567,900				567,900
70Mbps			11,500				35,000				76,000				137,000				649,100				649,100
80Mbps			12,000				36,000				84,000				151,300				730,400				730,400
90Mbps			12,500				37,000				92,000				165,700				811,600				811,600
100Mbps			13,000				37,500				100,000				180,100				892,900				892,900
110Mbps			13,500				38,000				107,500				187,300				933,500				933,500
130Mbps			13,800				38,500				122,500				201,600				1,014,800				1,014,800
155Mbps			14,500				39,000				130,000				216,000				1,096,000				1,096,000

     Effective April 2003, we began charging our corporate customers fees for our “Uni-Video” services based on package service plans, including up-front charges for testing, a monthly fee and usage charges. Retail customers of our “Uni-Video” services purchase re-chargeable cards to pay for such services.

     Internet Services

     The Internet services we offer include:

	•		Dedicated Internet Access. We offer business customers high speed Internet access through dedicated lines. As of December 31, 2007, we had a total of 22,586 subscribers for dedicated Internet access. We package this service with voice and data services to provide integrated communications solutions to our business customers and cooperate with cable operators and real estate developers to offer broadband access to residential customers.
	•		IDC Services. We have built Internet data centers, or IDCs, in selected cities including Shanghai, Beijing, Guangzhou and certain provincial capitals, and provide server hosting, server rental, virtual servers and other IDC services to commercial customers and virtual IDC operators.
	•		“Ruyi Mailbox” Services. This service allows our cellular subscribers to use their cellular phone numbers as e-mail addresses. As of December 31, 2007, the number of “Ruyi Mailbox” subscribers was approximately 11.97 million.
	•		Other Internet Services. Other Internet services we offer include international Internet Protocol-Virtual Private Network, or IP-VPN, Virtual Private Data Network, or VPDN, Virtual Internet Service Provider, or VISP, “Uninet” international roaming and corporate e-mail services.

     In addition, we plan to increase our efforts to cooperate with content developers on the content development for portable wireless devices, with such content provided through fiber optics networks and Wi-Fi networks. We believe the development of such business will allow us to compete with Internet operators more effectively.

     The following table sets forth selected historical information about our dedicated Internet access service operations and our subscriber base for the periods indicated.

		As of December 31,
		2005				2006				2007
Number of cities reached by our dedicated Internet access services			325				325				325
Number of subscribers of dedicated Internet access services			38,000				31,350				22,586

     Our tariff charges for dedicated Internet access include a network usage fee, an account set-up fee and a fixed telecommunications fee. Network usage fee is calculated based on monthly service plans. The account set-up fee is RMB100. The fixed telecommunications charge is based on the relevant tariffs for the particular type and bandwidth of the leased lines used to access the Internet. The following table summarizes the monthly network usage fees for selected bandwidths denoted as “R.”

Bandwidth		Standard network usage fees (RMB per month)
R£64Kbps			2,700-3,600
64Kbps<R£128Kbps			3,600-4,900
128Kbps<R£256Kbps			4,800-6,600
384Kbps <R£512Kbps			8,500-12,000
1024Kbps<R£2Mbps			18,000-27,000
8Mbps <R£10Mbps			59,400-70,000
20Mbps<R£34Mbps			165,900-195,200
34Mbps <R£45Mbps			210,000-250,000
45Mbps<R£100Mbps			428,400-504,000
100Mbps<R£155Mbps			664,100-781,200

     Our provincial and local branches are permitted to offer certain discounts based on the local market competition, provided that the relevant tariffs are not lower than the total cost of Internet access and interconnection.

     We charge a monthly usage fee for our “Ruyi Mailbox” services, which is currently RMB6 per month. We do not charge for SMS notifications of e-mail receipt. Other e-mail functions performed through SMS are charged based on the SMS tariff rates for our “uni-Info” services.

     Leased Line Services

     We lease transmission lines to large business customers and other telecommunications operators. Our leased line services provide customers with dedicated digital links directly connecting customer sites. As of December 31, 2007, we had a total leased bandwidth of an equivalent of 61,221 x2 Mbps circuits.

     Leased line tariffs are primarily based on the bandwidths of the lines leased and the distance of transmission. The following table sets forth State tariff rates for monthly fees of selected types and bandwidths of leased lines and selected distance categories:

		State Tariff Rates (RMB per month)
		Local (intra-district)				Local (inter-district)				Long distance
Digital Line (2 Mbps)			2,000				4,000				6,000
Digital Line (34 Mbps)			16,000				31,000				47,000
Digital Line (155 Mbps)			44,000				88,000				132,000

Source: MII.

     Similar to PSTN service operators, we can adopt tariffs that are different from the above State tariff rates as long as we do not offer services at tariff rates below cost. We generally offer our leased line services at a 10% discount to the State-guidance tariff rates and market these services to institutional customers through our own dedicated teams and our sales agents.

     Sale and Lease of Other Network Elements

     We have substantially completed the construction of our nationwide transmission network. See “— Networks — Transmission Network” below. We have started to offer some network elements such as optic fibers or fiber channels for lease to other telecommunications operators or corporate customers.

Interconnection and Roaming Arrangements

     Interconnection

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

     Our cellular networks and our long distance networks interconnect with the fixed telephone networks of China Telecom, China Netcom and China Railcom. Our cellular networks also interconnect with China Mobile’s cellular networks. Our Internet network interconnects with the Internet networks of China Telecom and China Netcom. Although we continue to encounter some difficulties in the execution of our interconnection arrangement with other operators in limited service areas, the situation has been significantly improved since 2004 due to improved regulatory supervision by the PRC government in this area.

     In October 2003, the former Ministry of Information Industry issued regulations relating to settlement between telecommunications networks. These new regulations contain provisions regarding revenue sharing methods and settlement mechanisms for interconnection arrangements between other operators and us. These interconnection arrangements under the new regulations are described in “— Regulatory and Related Matters — Interconnection Arrangements” below.

     Unicom Group entered into interconnection arrangements with China Telecom, China Netcom and China Mobile with the following agreements, which equally apply to us:

•

Framework interconnection and settlement agreement between Unicom Group and the former China Telecom, dated September 30, 2001, the rights and obligations of which were divided and continued after the former China Telecom was split into China Telecom and China Netcom pursuant to an agreement among Unicom Group, China Telecom and China Netcom, dated April 23, 2003. These interconnection and settlement agreements with China Telecom and China Netcom were superseded by the interconnection and settlement agreement between Unicom Group and China Telecom, dated March 29, 2004 and the interconnection and settlement agreement between Unicom Group and China Netcom, dated April 2, 2004. The 2004 agreements contained more detailed provisions relating to interconnection quality, pursuant to new directives of the former Ministry of Information Industry in this area.

	•		Interconnection and settlement agreements between Unicom Group and China Mobile relating to the interconnection between Unicom Group’s GSM and CDMA cellular networks and China Mobile’s GSM cellular networks, both dated November 14, 2001, which were subsequently amended and supplemented by the respective parties on December 31, 2003.
	•		Interconnection and settlement agreement between Unicom Group and China Mobile regarding the interconnection of point-to-point short messaging services, dated April 1, 2002.
	•		Interconnection and settlement agreement between Unicom Group and China Mobile regarding the interconnection between China Mobile’s GSM cellular networks and Unicom’s telecommunications networks, including its local fixed line telephony networks, cellular networks, domestic long distance telephony networks, international telephony networks and IP telephony network, and the interconnection between China Mobile’s international gateways and IP telephony network and Unicom Group’s cellular networks and local fixed line telephony networks, dated December 31, 2003.
	•		Agreement between Unicom Group and China Mobile regarding the mutual provision of open service platforms, dated November 5, 2003.
	•		Agreement between Unicom Group and China Mobile regarding the mutual provision of open multimedia messaging service and interconnection and settlement business, dated April 6, 2007.

     Unicom Group has also entered into the following interconnection arrangements, which equally apply to us:

	•		Interconnection and settlement agreements between Unicom Group and China Railcom relating to the interconnection of Unicom Group’s cellular networks and local fixed line telephony networks and China Railcom’s local fixed line telephony networks, domestic long distance networks and IP telephony networks, dated January 25, 2002 and April 9, 2002.
	•		Supplemental agreements between Unicom Group and China Railcom, which allow each party to offer its domestic and international long distance telephony services and IP telephony services to the cellular or fixed line telephony service subscribers of the other party, dated April 23, 2003.
	•		Interconnection and settlement agreement between Unicom Group and China Satcom relating to the interconnection between Unicom Group’s networks and China Satcom’s “Global Star” satellite mobile communications network, dated September 27, 2003.
	•		Framework interconnection and settlement agreement between Unicom Group and China Satcom relating to the interconnection between Unicom Group’s cellular networks and China Satcom’s IP telephony networks, dated September 24, 2003.
	•		Interconnection agreement among major Internet operators, including Unicom Group, and three national Internet switching centers relating to the interconnection of Internet backbone networks, dated December 20, 2001.

	•		Interconnection and settlement agreement between Unicom Group and China Telecom relating to the provision of point-to-point SMS services between Unicom Group’s and China Telecom’s networks, dated October 10, 2004.
	•		Interconnection and settlement agreement between Unicom Group and China Netcom relating to the provision of point-to-point SMS services between Unicom Group’s and China Netcom’s networks, dated October 11, 2004.

     For all interconnection services, we are required to pay the interconnection fees regardless of our ability or inability to collect the tariff from our subscribers. The fixed line operators are required to pay interconnection fees regardless of their ability or inability to collect the tariff from their subscribers, except for the interconnection by fixed line subscribers calling our cellular subscribers in the same region where no interconnection fee will be charged. Interconnection charges are accrued on a monthly basis based on the actual call volume and applicable tariff rate. See “B. Related Party Transactions — Provision of Ongoing Telecommunications and Ancillary Services and Premises — Interconnection Arrangements” under Item 7 below for the interconnection and settlement arrangements between Unicom Group and us.

     On June 2, 2008, our board of directors and the board of directors of China Netcom jointly announced proposals of a merger of us and China Netcom by way of a scheme of arrangement of China Netcom under Hong Kong laws. See “A. History and Development of the Company — Recent Developments — Proposed Merger between Us and China Netcom by Way of a Scheme of Arrangement” under Item 4.

     Roaming

     As of December 31, 2007, our cellular subscribers can roam on cellular networks in most of the countries and regions around the globe through Unicom Group’s international roaming agreements with 283 GSM operators in 179 countries and regions and 25 CDMA operators in 17 countries and regions. A cellular subscriber using roaming services is charged at our roaming usage rate for both incoming and outgoing calls, plus applicable long distance tariffs. With respect to international roaming, we settle roaming revenue with international operators in accordance with roaming agreements between Unicom Group and each of the international operators. Unicom Group has also agreed to arrange for us to participate in its future international roaming arrangements.

     See “B. Related Party Transactions — Provision of Ongoing Telecommunications and Ancillary Services and Premises — Roaming Arrangements” under Item 7 below for further information regarding prior roaming arrangements between Unicom Group and us.

     In February 2008, the former Ministry of Information Industry and the NDRC jointly promulgated the Notice in Relation to Reduction of Tariff Cap for Domestic Mobile Roaming Services, or the Tariff Notice, to require mobile telecommunication companies in China to adjust their mobile roaming charges where necessary to comply with the following new requirements.

	•		unifying domestic roaming charges with charges for long distance calls made during domestic roaming;
	•		unifying the charges for pre-paid and post-paid mobile subscribers;
	•		setting different tariff caps for callers and receivers in the context of domestic mobile roaming, with the tariff cap for callers being set at RMB0.6 per minute and the tariff cap for receivers being set at RMB0.4 per minute; and

•

abolishing the additional charge for use of the long distance network in the context of domestic roaming.

     The Tariff Notice also requires telecommunication companies in China to upgrade their existing billing system to comply with these new requirements by March 1, 2008, which can be extended to May 1, 2008. We finished adjusting our charges and upgrading our billing system by March 1, 2008 in response to the requirements set forth in the Tariff Notice. See “D. Risk Factors — Risks Relating to the Telecommunications Industry in China — Regulatory or policy changes relating to the PRC telecommunications industry or any future industry restructuring may materially adversely affect our financial condition, results of operations and growth prospects.” under Item 3.

     On June 2, 2008, the MII, the NDRC and the Ministry of Finance of the PRC jointly issued the “Announcement on Deepening the Reform of the Structure of the Telecommunications Sector,” pursuant to which the PRC government seeks to promote the integration of telecommunication services and networks of different services providers, including the offering of roaming services across different mobile telecommunication networks.

Networks

     We operate an advanced network system to support our integrated operations. The backbone of the system is a nationwide fiber optic transmission network, which serves as the common platform for our cellular, long distance, data and Internet networks. In addition, we continue to develop management and network support systems to enhance the quality and reliability of our networks and improve our customer service and operating efficiency. We generally utilize a centralized network planning and equipment selection process, which ensures uniform nationwide design and network compatibility.

     Transmission Network

     We own and operate an advanced nationwide fiber optic transmission network (except for the Xizang Autonomous Region, in which we lease capacity from other operators). As of December 31, 2007, our fiber optic transmission network had a total cable length of approximately 0.92 million kilometers, of which fiber optic backbone transmission network accounted for approximately 129,000 kilometers.

     Our fiber optic transmission network is designed for broadband capacity with superior security and reliability, which supports our integrated telecommunications services and allows us to lease capacity to other telecommunications operators and corporate customers. The network deploys:

	•		synchronous digital hierarchy, or SDH, architecture with protective two- or four-fiber rings, a self-healing system that allows for instantaneous rerouting, automatically protects service circuits and minimizes down time in the event of a fiber cut or equipment malfunction;
	•		dense wave division multiplexing, or DWDM, technology, a means of increasing transmission capacity by transmitting signals over multiple wavelengths through a single fiber; and
	•		a digital cross connection, or DXC, system, a specialized high-speed data channel exchange and connection system that effectively manages the routing and channeling of our services.

     Our SDH fiber rings have transmission bandwidths of 2.5 Gb/s in most routes and 10 Gb/s for the fiber ring that covers the eastern and southern coastal areas of China. We mainly deploy transmission equipment and technology supplied by Nokia Siemens Networks, Nortel, Alcatel-Lucent, Huawei, ZTE and other vendors.

     Concurrently with the construction and expansion of our domestic backbone transmission network, we also seek to expand our international bandwidth. Through our participation in the Asia Pacific Cable Network No. 2 Project, or APCN 2, a trans-Pacific submarine cable project that connects major countries and regions in eastern Asia and southeastern Asia and links them to North America through Japan, and our membership in the US-Japan Submarine Cable Organization, we are linked with 11 operators in Japan, U.S., South Korea, Singapore and Taiwan with a total network capacity of 62x155 Mbps, or 62 SMT-1. In December 2006, we also participated in the construction of the trans-pacific submarine cable, or TPE, a high-speed submarine cable that will connect eastern Asia and North America. The construction of TPE is expected to be completed in second half of 2008 and we will have an initial transmission capacity of 180 Gbps upon completion. We also lease 23x155 Mbps of international broadband transmission capacity from Sprint, C2C and Verizon. We have also opened transmission lines on land with the main operators in Hong Kong and Macau, with 30Gbps and 2.5Gbps of transmission capacity, respectively. In addition, we have established several fiber-optic interconnections with China’s neighboring countries such as Vietnam, Mongolia, Russia and Kazakhstan with transmission capacity ranging from 622Mbps to 10Gbps.

     Cellular Networks

     A cellular network generally consists of:

	•		cell sites, which are physical locations, each equipped with a base station that houses transmitters, receivers and other equipment used to communicate through radio channels with subscribers’ cellular handsets within the range of a cell;
	•		base station controllers, which connect to, and control, the base stations;
	•		mobile switching centers, which control the base station controllers and the routing of telephone calls; and
	•		transmission lines, which link the mobile switching centers, base station controllers, base stations and the public switched telephone network.

     We own most of the GSM cellular transmission network at the local and provincial level. We lease a portion of our inter-provincial transmission capacity for our GSM cellular networks as well as the CDMA cellular transmission network. We also use our own backbone fiber optic transmission network to provide transmission capacity for our cellular networks. We continue to focus on the management and operation of our cellular networks.

     GSM Cellular Networks. The following table sets forth selected information regarding our GSM cellular networks in our service areas as of the dates indicated.

		As of December 31,
		2005(1)				2006(1)				2007(1)
Network subscriber capacity (in thousands of subscribers)			90,644				106,707				130,574
Base stations			96,311				125,103				153,885
Base station controllers			1,818				2,060				2,235
Mobile switching centers			513				513			537 (including soft switch)

     Currently our GSM cellular network mainly operates at 900 MHz. We have deployed GSM technology that operates at 1800 MHz in some major metropolitan areas to supplement the capacity of our existing cellular network. We have the right to use 6 x 2 MHz of spectrum in the 900 MHz frequency band and 10 x 2 MHz in the 1800 MHz frequency band for our GSM network.

     Our cellular networks are supported by an advanced SS7 signaling system, which fosters efficient use of network capacity, reduces call setup time and enhances transmission capabilities. We have also installed intelligent networks that enable us to provide pre-paid services and a wide range of call features and value-added services.

     On May 17, 2007, we launched the commercial operation of GPRS services in 70 cities on a trial basis and as of the end of 2007, our commercial GPRS operation covered 221 cities. We plan to continue to expand our GPRS upgrade to additional cities in 2008.

     CDMA Cellular Network. By the end of 2006, Unicom Group completed the construction of a comprehensive CDMA network, with an aggregate network exchange capacity of approximately 51.40 million subscribers, wireless capacity of approximately 94.00 million subscribers and nationwide coverage as of the end of 2007. We lease CDMA network capacity in our cellular service areas to operate Unicom Group’s network in those areas on an exclusive basis. We have the right to use 10x2 MHz of spectrum in the 800 MHz frequency band for our CDMA services.

     Long Distance, Data and Internet Networks

     By the end of 2007, our PSTN network reached 330 cities, while the coverage of our Internet networks, including our IP telephony networks, included over 337 cities throughout China.

     Long Distance Network. Our long distance network is supported by a nationwide billing system and an intelligent network, which allows us to provide multiple services. Our cellular subscribers can access these services directly through our cellular networks, but our other customers typically access our long distance telephony, IP telephony and Internet services through the public switched telephone networks of China Telecom and China Netcom.

     Data and Internet Networks. Our broadband data and Internet networks utilize a unified IP and ATM design, which is particularly suited for real-time, multimedia applications such as video and voice. ATM switches perform high-speed switching of voice and data traffic and minimize time delay and congestion. They can also prioritize applications that least tolerate time delay, such as telephony and video, over less time-sensitive applications such as e-mails and file transfer. As of December 31, 2007, the international and domestic interconnection bandwidths have reached 3.8Gbps and 17.8Gbps, respectively.

     Internet Network. Our Internet network, branded as “Uninet,” is also centrally designed and has a nationwide uniform architecture. It is supported by a nationwide, advanced billing system that facilitates roaming access and delivery of virtual ISP services and other value added services.

     Broadband Video Network. Our broadband video network utilizes the H.323 technological standard and two-tier network structure. H.323 is a widely used multi-media conferencing protocol approved by the International Telecommunications Union. As of December 31, 2007, it can provide video

conference and video telephone services and currently reaches over 300 cities nationwide as well as the United States and Hong Kong.

     Integrated Access Networks. We believe that the key to the success of our data services is our ability to offer integrated access to customers’ premises. We are building integrated access networks in many cities throughout China. We focus the construction of our access networks on linking major office buildings to our metropolitan area transmission networks. We rely mainly on fiber optic cables to link office buildings to our networks and have offered narrow-band wireless access at the 3.5 GHz frequency band in approximately 3 municipalities, 18 provincial capitals and 14 provinces.

     Information Systems

     We have established comprehensive information systems in each province, municipality and autonomous region to support our business and management. For our business support, we have established core systems composed of a customer relationship management system, a billing and settlement system and an operation analysis system to support services and marketing of our cellular, data and long distance businesses. For our management support, we have focused on developing a human resource management system and a financial management system to enhance the efficiency of our control and management over our resources. In addition, we have established a nationwide billing, settlement and business management system at our headquarters, which has effectively supported the development of our domestic and international roaming services and our nationwide services.

Marketing, Sales and Distribution

     We centrally plan our nationwide marketing and sales strategies, but the implementation of these strategies is carried out at the provincial level by operating branches tailored to their specific markets. In 2007, we further implemented our brand-centric marketing strategy and established a comprehensive branding structure, with an equal focus on existing subscriber retention and subscriber base expansion.

     Sales and Marketing

     We focus on developing a strong brand image of “Connecting you freely” that conveys our strengths in high quality services, comprehensive network coverage, integrated solution offerings, advanced technology and customer focus. We market all of our services under the China Unicom brand name. In 2007, we continued to implement the customer-oriented branding system focusing on four customer brands — “Worldwind,” “U-Power,” “Ruyi Tong” and “Unicom Horizon.” We consolidated our products, tariff structure and channel resources to offer distinctive customized service packages under these four customer brands that are targeted to different market segments. We launched “Worldwind 156” GSM to offer high quality and differentiated services to mid- to high-end individual GSM cellular customers and to establish a premium brand image. We expended significant efforts in marketing the “Ruyi Tong” service, which targeted to offer mainstream cellular services to individual customers in the mass market, particularly potential new subscribers in the rural areas. We actively developed the youth and campus markets to increase the market share and improve the customer quality of our “U-Power.” We actively developed institutional and industrial customers by providing integrated telecommunications solutions to government, small- and medium-sized enterprises and customers in industries, such as agriculture, finance and capital markets, which also helped increase the influence of “Unicom Horizon” brand. In addition to the four customer brands, we offer two business brands, “uni” and “Unicom Commerce,” which are used to market our value-added services to cellular subscribers and long distance, data and Internet services to primarily institutional customers, respectively.

     Our marketing strategy utilizes our image as an integrated telecommunications service provider and leverages our comprehensive services and nationwide sales and distribution network. By using direct sales forces and sales agents for active market analysis and sales channels such as direct sales, service centers, sales outlets and large-scale chain stores, our marketing strategy can be targeted at different customer segments and adjusted timely in accordance with the demands of different markets.

     Moreover, we seek to formulate effective marketing strategies through customer relations management and analysis of customer segmentation, customer demand and consumption trends.

     Customer Segmentation: We have two main categories of customers: (i) institutional customers, comprised of mainly corporate, industry and government customers, and (ii) individual customers. We have set up dedicated sales and service departments for institutional customers, both at our headquarters and at our provincial and local branches. By focusing on certain key industries, we continued to expand our institutional customer base. By the end of 2007, the total number of our Unicom Horizon customers reached 363,000. We focus on the sales of our integrated and customized solutions to these institutional customers. For individual customers, we conduct our sales through our own service centers and the retail outlets of independent sales agents.

     Cellular services: In order to better coordinate our sales and marketing efforts in our cellular service provisions, in 2007 we separated our sales and marketing personnel and activities for our CDMA services from those for our GSM services. As a result, the sales and marketing department of our headquarters and our provincial-level branches have been separated into two independent departments for GSM and CDMA businesses, respectively. By establishing a dedicated sales and marketing team for each cellular service segment, we are able to implement more competitive and focused sales and marketing strategies in a cost-effective way. In addition, a new department — a comprehensive sales and marketing department — was established at our headquarters to supervise and coordinate the sales and marketing activities of the GSM and CDMA businesses and formulate company-wide policies and strategies in respect of sales and marketing of our cellular services and products. See “D. Risk Factors — Risks Relating to Our Business — Our CDMA and GSM businesses compete with each other in certain areas, which may adversely affect the growth and profitability of these businesses.” under Item 3.

     We promote our CDMA services by leveraging our abundant CDMA network resources and the technological advantage of CDMA 1X to provide differentiated services targeted at different market segments, including tailoring different service packages for different consumer groups. In 2007, we continued to focus on optimizing the correlation between handset subsidies and the revenue generated by the related subscribers. We centralized our purchasing of CDMA handsets to lower the entry barrier of our CDMA services caused by high handset prices and to make our CDMA services more attractive and affordable to the mass market. We have also coordinated the sourcing of certain models of CDMA handsets with SKT to accelerate the commercial launch of new models of CDMA handsets. In addition, by offering a one-stop solution for customers, based on the wireless service capacity of CDMA 1X network technology, we actively pursued integrated services marketing to promote our CDMA 1X wireless data services.

     On June 2, 2008, we, CUCL and China Telecom entered into a framework agreement to sell our CDMA business to China Telecom. See “A. History and Development of the Company — Recent Developments — Proposed Disposal of Our CDMA Business to China Telecom and Related Transactions — Proposed Disposal of CDMA Business” under Item 4.

     For our GSM services, we focused on the promotion of our brand awareness. We launched “Worldwide 156” to provide differentiated services and products targeting mid- to high-end customers and to establish a premium brand image. We also endeavored to expand the rural market and youth and campus

markets through marketing “Ruyi Tong” and “U-Power” businesses. In addition, as a part of our strategy, we will focus on the development of our VAS. We will continue to increase the penetration rate of and the revenues from certain mature services, including SMS and “Cool Ringtone”. Meanwhile, we will leverage our upgraded GPRS networks in 221 Chinese cities to promote GPRS services, such as WAP, JAVA and point-to-point “Color Mail” multimedia message services.

     For our wireless VAS business, we focused on increasing the penetration rate of SMS, Cool Ringtone and wireless data services to achieve higher ARPU for our VAS business. In addition, we also plan to expand our market share in newer services such as mobile music, instant message and stock trading services.

     Recognizing the importance and the needs of our institutional customers and utilizing our advantages of being an integrated telecommunications operator, we formulated marketing strategies for our cellular services that were tailored to our institutional customers. In 2007, we continued to emphasize the development of advanced and customized industrial applications for our institutional customers. By offering industrial solutions, our business extended from the provision of basic telecommunications services to comprehensive value-added information services. For example, we expanded the CDMA IX-based applications for corporate and industrial customers in specific industries such as maritime. We introduced the “SAIC Enforcement Horizon” application which aims to offer tailored wireless services to law enforcement personnel of the SAIC. In addition, we designed a “Sales Tracker” application service for our retail store and supplier clients to timely and conveniently communicate sales information. Furthermore, we also introduced the “Logistics Horizon” application to help logistics companies more efficiently manage sales, supplies, logistics and other services.

     Long distance, data and Internet services: In 2007, we continued to focus on institutional customers, including financial institutions, large corporations, multi-national corporations, government entities and Internet service providers and Internet content providers to provide them with customized “one-stop” solutions. We fully launched “Unicom Commerce” to offer integrated telecommunications services specifically designed to cater to institutional customers’ needs. Our marketing efforts with respect to retail customers were focused on promoting profitable services and products.

     Service Bundling and Cross-Marketing: A key element of our sales and distribution strategy is to promote our strengths as a provider of a comprehensive range of integrated services. This strategy is implemented by our service centers, independent sales agents and direct sales forces, which distribute and support our various product offerings. For example, we cross-sell our long distance, data and Internet services to our cellular subscribers, as well as bundle wireless data service with voice services. In addition, based on the specific demands of our industry and institutional clients, we provide customized communications solutions by bundling Virtual Private Network, or VPN, IP telephony, “Uni-Video” broadband video-telephony and “U-Net” services under the brand “Unicom Commerce.”

     Distribution

     We have a diversified distribution network comprising of self-owned sales outlets, agent/distributor sales outlets and direct sales forces. We distribute our services to our individual customers through our self-owned sales outlets as well as other retail outlets. We distribute our services to large customers through our direct sales forces and agents. We have developed a nationwide distribution network of service centers and sales outlets, of which only a small portion are owned by us and the rest are owned by independent agents or distributors. In addition, as a part of the segregation of the sales and marketing functions for our GSM and CDMA businesses, we have reorganized our existing distribution system into two distinctive distribution systems for each of our GSM and CDMA businesses. Furthermore,

we recently focused on the development of our Internet website which will function as an electronic distribution channel to provide comprehensive sales and customer services to our users.

     We generally aim to maintain a flat distribution structure, but utilize a multi-level distribution system in some service areas, in which our top-level distributors further distribute to lower level distributors and sales agents. In 2007, we further reduced the levels of such distribution system to control distribution costs. We have also set up direct distribution centers to further flatten the distribution structure in some areas. We have also established direct sales and customer service teams to conduct one-on-one sales to high-usage institutional customers. These direct sales and customer service teams’ focus is to promote our cellular, domestic and international long distance, data and Internet services as integrated telecommunications services in order to provide differentiated and comprehensive solutions for our customers. In 2007, we actively pursued cooperation opportunities with third party distribution channels to optimize our overall distribution system. In addition, we enhanced control and evaluation of third party distribution channels by strengthening the assessment of potential customer contributions.

Customer Service

     We provide specialized, differentiated and “one-stop” services to our customers, based on the customer service resources of Unicom Group. In 2006, we developed a tiered customer service system based on our service brands, and launched a uniform service brand of “Unicom 10010” to consolidate all customer service resources and unify the service standards and processing procedures adopted in our outlets, customer service centers, customer clubs and other customer service channels. Our customer service centers in each provincial service area can be accessed by our customers by dialing a nationwide hotline number “10010.” Our customer service system is a nationwide platform with provincial centers, providing customer services for all of our businesses. This system is based on the customer service centers, and also relies on other systems, including operations, billing, account management and network management. This integrated system allows us to provide personalized and diversified services through customer service representatives or automated systems, including service inquiry, billing inquiry, response to customer complaints and suggestions, service initiation and termination, payment reminder services, emergency and club membership services, to different types of customers on a 24-hour basis. Our customers can access our customer services through various means, including telephone calls, faxes, e-mails and SMSs. To better serve our customers, we provide such convenient value-added services as 10011 bill inquiry hotline, 101901 bill inquiry express line, 13010199999 international roaming service free hotline, bill payment through commercial banks, free copies of detailed statements, Internet account inquiry and a rechargeable card for all of our services. In 2007, we continued to promote the “Unicom 10010” service brand by proactively launching a series of customer service campaigns, such as “Service Year of China Unicom,” “Good Faith Services, No Hassle Consumption.” We further implemented differentiated and brand-centric customer services and strengthened customer retention through centralizing quality service resources and creating featured member service. In January 2008, the “Unicom 10010” brand name was recognized as one of the “2007 Top Ten Most Influential Brands for Customer Service in China” in the “Fourth (2007) Top Ten Most Influential Brands in China” awards jointly granted by People’s Daily, China International Brand Academy and other six agencies and associations.

     Our headquarters and provincial centers have set up hotlines for customer complaints. We also implemented a customer service responsibility system to require all levels of our branches to resolve customers’ problems within a prescribed period of time. Such a system has helped us to improve service quality and enhance our customer satisfaction. In addition, we have also analyzed our customer segments in detail, and tailored our services to the requirements of different customer segments. While we are focusing on the retention of our individual customers, we pay regular visits and provide one-on-one personalized services to our institutional customers and VIP customers and, through “customer clubs,” provide high-quality and differentiated services for high-net-worth individual customers and important

institutional customers. In addition, we also promote the loyalty of these customers through our nationwide club member reward program. For mass-market customers, we offer standardized services that aim at enhancing customer experience.

Billing and Collection

     We are able to leverage our strengths as an integrated service provider to offer integrated billing and collection services to our institutional and individual customers. We also integrate the billing systems for different services and distribute unified recharge cards that can be used to recharge various pre-paid services, including pre-paid cellular services, long distance telephony services and Internet dial-up services. Our billing system can distinguish between customers based on the marketing method and service package plans applicable to each customer. These additional functions would allow us to analyze customer data in more detail, thereby improving our ability to analyze the age of our accounts and control bad debts. The following table sets forth our billing and collection methods for each of our business segments:

Business Segment		Billing		Collection
Post-paid GSM and CDMA services		Centralized at the provincial level and generally by monthly billing.		Subscribers may pre-deposit their service charges with us or commercial banks or China Post that collect payment for us, make payment in person at our service centers or branches of China Post, or through commercial banks.
Pre-paid GSM and CDMA services		Centralized on our nationwide intelligent network.		Subscribers can purchase and/or recharge pre-paid cards through various channels. They can also recharge cards by telephone.
PSTN long distance telephony services		Settlement through centralized system at our headquarters with billing handled at the provincial branch level.		Subscribers mainly go to our service centers, commercial banks and branches of China Post for payment.
IP telephony services		Settlement through centralized system at our headquarters with billing for 17910 business carried out by our headquarters and 17911 by our provincial branches.		Subscribers mainly go to our service centers, commercial banks and branches of China Post for payment.
“Uni-Video” services		Centralized at our headquarters except that our Guangdong provincial branch is in charge of the billing of pre-paid subscribers to our video-telephony services in Guangdong Province.		Our corporate customers can pay either at the local service centers in the locations of the branches of such customer or at one local service center designated by the customer.
Internet services		Centralized at the provincial level. Billing methods include monthly billing, volume-based billing and billing according to contractual provisions.		Subscribers may go to our service centers, commercial banks, and branches of China Post or use the Internet for payment.
“Unicom’s Internet Plaza”		Customers of the Internet cafes either pay by membership or pay hourly rates.		N/A
Leased lines		Monthly billing in accordance with		Customers mainly pay at our service

Business Segment		Billing		Collection
		contractual provisions.		centers or at commercial banks.