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Report of the Directors
/ Annual Report 2011 /
1
Continuing Connected Transactions Agreements Between the Company and China
Telecom
The Company and China Telecom entered into six continuing connected transactions agreements on 16 November
2006 to manage the continuing connected transactions between the Group and China Telecom Group. These
agreements include Engineering Framework Agreement, Ancillary Telecommunications Services Framework
Agreement, Operation Support Services Framework Agreement, IT Application Services Framework Agreement,
Property Leasing Framework Agreement and Centralized Services Agreement. Each of these agreements had
an initial term expiring on 31 December 2008 and, subject to approval from the shareholders (if applicable), the
aforementioned six amended continuing connected transactions agreements would be automatically renewed for a
further period of not more than three years each time, unless terminated by either party by giving a written notice
three months in advance.
The Company announced on 15 June 2007, and completed on 31 August 2007, its acquisition of China Telecom’s
specialized telecommunications support business (“Target Business”) located in 13 provinces (municipalities and
autonomous regions). In connection with the acquisition of the Target Business, a supplemental agreement in
respect of the aforementioned six continuing connected transactions agreements was entered into between the
Company and China Telecom on 15 June 2007 (the “2007 Supplemental Agreement”). The 2007 Supplemental
Agreement extended the validity period of the six continuing connected transactions agreements to 31 December
2009, and extended the coverage of those agreements to 19 provinces (municipalities and autonomous regions),
being the Group’s primary service regions immediately after the completion of the acquisition of the Target Business.
On 19 September 2008, the Company entered into a second supplementary agreement with China Telecom in
respect of the aforementioned six agreements (the “2008 Supplementary Agreement”) and extended the term of
the six continuing connected transactions agreements to 31 December 2010. On 29 October 2009, the Company
entered into a Supplies Procurement Service Framework Agreement with China Telecom effective from 1 January
2009 to 31 December 2010. On 9 November 2010, the Company entered into another supplemental agreement with
China Telecom in respect of the aforementioned seven agreements (the “2010 Supplementary Agreement”) and
extended the term of the seven continuing connected transactions agreements to 31 December 2012 with other
terms unchanged.
Subject to approval from the shareholders (if applicable), the aforementioned seven amended continuing connected
transactions agreements will be automatically renewed for a further period of not more than three years each time,
unless terminated by either party by giving a written notice three months in advance. In connection with the entry of
the 2010 Supplementary Agreement, the Company also set new annual caps for the two years ended 31 December
2012 in respect of the transactions contemplated under the seven continuing connected transactions agreements (see
table above). The 2010 Supplemental Agreement and the new annual caps (excluding the new annual caps for the
Property Leasing Framework Agreement and Centralized Services Agreement that did not require any independent
shareholders approval under the Listing Rules) were approved by the independent shareholders of the Company at
the extraordinary general meeting held on 30 December 2010.
The Company announced on 14 November 2011 to propose the increase of annual caps for service charges payable
to China Telecom Group under the Supplies Procurement Services Framework Agreement to RMB2,100 million and
RMB2,600 million respectively, for the two years ending 31 December 2011 and 2012. In 2011, China witnessed
a rapid development in the telecommunication industry and there was a rapid increase in mobile users and the
corresponding demand for mobile terminals. In response to the high demand for mobile terminals, the Company
increased the procurement of telecommunications supplies especially the mobile terminals from China Telecom
Group, and leveraged on the existing distribution network of the Company to better address the market opportunities
and promote the rapid development of business. The Company believes that the increase in the distribution of
mobile terminals will increase the revenue and profit of the Company as well as reinforce its cooperation and
relationship with China Telecom Group to ensure a stable revenue source, which will benefit the Company’s future
growth and development. Details of above revised annual caps for the Supplies Procurement Service Framework
Agreement were disclosed in the circular dated 15 November 2011 and approved by the independent shareholders
of the Company on 30 December 2011.
Details of the terms of the above continuing connected transactions are set out below.