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/ China Communications Services Corporation Limited /
Report of the Directors
Engineering Framework Agreement
Pursuant to the Engineering Framework Agreement, the Company agreed to provide certain engineering related
services, such as design, construction, project supervision and management services for telecommunications
infrastructure projects undertaken by the China Telecom Group. The charges payable for engineering-related services
rendered under the Engineering Framework Agreement shall be determined by reference to market rates or as
reflected by prices obtained through the tender process. The Company shall be accorded priority by China Telecom
Group in the provision of the engineering related services except in the tender process, provided that the terms and
conditions offered by independent third parties to China Telecom Group are no more favourable than those offered
by the Company for the same services. In return, the Company has undertaken to China Telecom Group that the
Company shall not provide services to it on terms which are less favourable than those offered by the Company to
independent third parties.
Ancillary Telecommunications Services Framework Agreement
Pursuant to the Ancillary Telecommunications Services Framework Agreement, the Company agreed to provide
to China Telecom Group certain ancillary telecommunications services such as maintenance of network facilities
including equipment, ducts and cables, equipment rooms and base stations; distribution of telecommunications
products and services; provision of application, content and other services such as fixed-line value-added services,
wireless value-added services, Internet value-added services, and the development of online gaming, certificate
authentication and the value-added business platform of Internet cafés (the “Ancillary Telecommunications
Services”). The Ancillary Telecommunications Services Framework Agreement stipulates that the Ancillary
Telecommunications Services be provided at:
(1)
government-prescribed price;
(2)
where there is no government-prescribed price but where there is a government-guidance price, the
government-guidance price;
(3)
where there is neither a government-prescribed price nor a government-guidance price, the market price.
The market price is defined as the price at which the same type of services are provided by independent third
parties in the ordinary course of business; or
(4)
where none of the above is applicable, the price is to be agreed between the relevant parties for the provision
of the above services, which shall be the reasonable cost incurred in providing the same plus a reasonable
profit (for this purpose, “reasonable costs” means the costs confirmed by both parties after negotiations, and
“reasonable profits” means a profit ratio confirmed by both parties during the course of normal commercial
negotiation, taking into account factors such as historical price, transaction size, average profit ratio within the
relevant industry, supply and demand, labour cost, local commodity prices and economic development levels).
The Company will be given priority by China Telecom Group in the provision of the Ancillary Telecommunications
Services, provided that the terms and conditions offered by independent third parties to China Telecom Group are
no more favourable than those offered by us for the same services. In return, we have undertaken to China Telecom
Group that we shall not provide Ancillary Telecommunications Services to it on terms which are less favourable than
those offered by us to independent third parties.