Company Quick10K Filing
Chunghwa Telecom
20-F 2019-12-31 Filed 2020-04-17
20-F 2018-12-31 Filed 2019-04-29
20-F 2017-12-31 Filed 2018-04-27
20-F 2016-12-31 Filed 2017-04-25
20-F 2015-12-31 Filed 2016-04-27
20-F 2014-12-31 Filed 2015-04-28
20-F 2013-12-31 Filed 2014-04-28
20-F 2012-12-31 Filed 2013-04-22
20-F 2011-12-31 Filed 2012-04-20
20-F 2010-12-31 Filed 2011-04-20
20-F 2009-12-31 Filed 2010-04-20

CHT 20F Annual Report

Part I
Item 1.Identity of Directors, Senior Management and Advisers
Item 2.Offer Statistics and Expected Timetable
Item 3.Key Information
Item 4.Information on The Company
Item 4A.Unresolved Staff Comments
Item 5.Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Stockholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Note 38 To Our Consolidated Financial Statements Included Elsewhere in This Annual Report Provides A Sensitivity Analysis for Foreign Currency Risk.
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
Note 3: Companies Shall Apply The Amendments To Pension Plan Amendments, Curtailments or Settlements Occurring on or After January 1, 2019.
EX-8 cht-ex81_10.htm
EX-12 cht-ex121_9.htm
EX-12 cht-ex122_8.htm
EX-13 cht-ex131_7.htm
EX-13 cht-ex132_6.htm

Chunghwa Telecom Earnings 2017-12-31

Balance SheetIncome StatementCash Flow

20-F 1 cht-20f_20171231.htm FORM 20-F cht-20f_20171231.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

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

or

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

For the fiscal year ended December 31, 2017

or

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

or

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
For the transition period from                               to
Commission file number 001-31731

 

Chunghwa Telecom Co., Ltd.

(Exact name of Registrant as specified in its charter)
Chunghwa Telecom Co., Ltd.
(Translation of Registrant’s name into English)
Taiwan, Republic of China
(Jurisdiction of incorporation or organization)
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
(Address of principal executive offices)
Fufu Shen
21-3 Hsinyi Road, Section 1, Taipei,
Taiwan, Republic of China
Tel: +886 2 2344-5488
Email: chtir@cht.com.tw
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

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

 

Title of each class

 

Name of each exchange on which registered

Common Shares, par value NT$10 per share

 

New York Stock Exchange*

American Depositary Shares, as evidenced by American

 

New York Stock Exchange

Depositary Receipts, each representing 10 Common Shares

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:  
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

 

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.

7,757,446,545 Common Shares

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S -T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act

.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

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

 

U.S. GAAP

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

Other

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

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

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

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

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

 

*

Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares

 

 

 

 


 

CHUNGHWA TELECOM CO., LTD.

FORM 20-F ANNUAL REPORT

FISCAL YEAR ENDED DECEMBER 31, 2017

TABLE OF CONTENTS

 

 

 

Page

 

 

 

SUPPLEMENTAL INFORMATION

 

1

FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED

 

2

 

 

 

 

 

Part I

 

 

 

3

ITEM 1.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

3

ITEM 2.

 

OFFER STATISTICS AND EXPECTED TIMETABLE

 

3

ITEM 3.

 

KEY INFORMATION

 

3

ITEM 4.

 

INFORMATION ON THE COMPANY

 

17

ITEM 4A.

 

UNRESOLVED STAFF COMMENTS

 

57

ITEM 5.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

57

ITEM 6.

 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

83

ITEM 7.

 

MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS

 

92

ITEM 8.

 

FINANCIAL INFORMATION

 

93

ITEM 9.

 

THE OFFER AND LISTING

 

94

ITEM 10.

 

ADDITIONAL INFORMATION

 

96

ITEM 11.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

111

ITEM 12.

 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

112

 

 

 

 

 

Part II

 

 

 

114

ITEM 13.

 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

114

ITEM 14.

 

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

114

ITEM 15.

 

CONTROLS AND PROCEDURES

 

114

ITEM 16A.

 

AUDIT COMMITTEE FINANCIAL EXPERT

 

116

ITEM 16B.

 

CODE OF ETHICS

 

116

ITEM 16C.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

116

ITEM 16D.

 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

117

ITEM 16E.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

117

ITEM 16F.

 

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

117

ITEM 16G.

 

CORPORATE GOVERNANCE

 

117

ITEM 16H.

 

MINE SAFETY DISCLOSURE

 

119

 

 

 

 

 

Part III

 

 

 

120

ITEM 17.

 

FINANCIAL STATEMENTS

 

120

ITEM 18.

 

FINANCIAL STATEMENTS

 

120

ITEM 19.

 

EXHIBITS

 

122

 

 

 

i


 

SUPPLEMENTAL INFORMATION

All references to “we,” “us,” “our” and “our company” in this annual report are to Chunghwa Telecom Co., Ltd. and our consolidated subsidiaries, unless the context otherwise requires. All references to “shares” and “common shares” are to our common shares, par value NT$10 per share, and to “ADSs” are to our American depositary shares, each of which represents ten of our common shares. The ADSs are issued under the deposit agreement, as amended, supplemented or modified from time to time, originally dated as of July 17, 2003, among Chunghwa Telecom Co., Ltd. and the Bank of New York, and amended and restated on November 14, 2007, among Chunghwa Telecom Co., Ltd. and JP Morgan Chase Bank, as depository, and the holders and beneficial owners of American Depositary Receipts issued thereunder. All references to “Taiwan” are to the island of Taiwan and other areas under the effective control of the Republic of China. All references to “the government” or “the ROC government” are to the government of the Republic of China. All references to “the Ministry of Transportation and Communications” or “the MOTC” are to the Ministry of Transportation and Communications of the Republic of China. All references to “the National Communications Commission” or “the NCC” are to the National Communications Commission of the Republic of China. All references to the “Securities and Futures Bureau” are to the Securities and Futures Bureau of the Republic of China or its predecessors, as applicable. “ROC GAAP” means the generally accepted accounting principles of the Republic of China, “U.S. GAAP” means the generally accepted accounting principles of the United States, “IFRSs” means International Financial Reporting Standards as issued by the International Accounting Standards Board, and “Taiwan IFRSs” means the International Financial Reporting Standards as issued by the International Accounting Standards Board and endorsed by the Financial Supervisory Commission, or the FSC, which are required to be adopted by applicable companies in the ROC pursuant to the “Framework for Adoption of International Financial Reporting Standards by Companies in the ROC” promulgated by the FSC on May 14, 2009. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. Unless otherwise indicated, or the context otherwise requires, references in this annual report to financial and operational data for a particular year refer to the fiscal year of our company ending December 31 of that year.

When we refer to our “privatization” or our being “privatized” in this annual report, we mean our status as a non-state-owned entity after the government reduced its ownership of our outstanding common shares, including our common shares owned by entities majority-owned by the government, to less than 50%. We were privatized on August 12, 2005.

We publish our consolidated financial statements in New Taiwan dollars, the lawful currency of the Republic of China. In this annual report, “NT$” and “NT dollars” mean New Taiwan dollars, “$,”“US$” and “U.S. dollars” mean United States dollars.

1


 

FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED

This annual report contains forward-looking statements, including statements regarding:

 

our business and operating strategies;

 

our network expansion plans;

 

our business, operations and prospects;

 

our financial condition and results of operations;

 

our dividend policy;

 

the telecommunications industry regulatory environment in Taiwan; and

 

future developments in the telecommunications industry in Taiwan.

These forward-looking statements are generally indicated by the use of forward-looking terminology such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “aim,” “seek,” “project,” “may,” “will” or other similar words that express an indication of actions or results of actions that may or are expected to occur in the future. These statements reflect our current views with respect to future events and are subject to risks, uncertainties and assumptions, many of which are beyond our control. The forward-looking statements are contained principally in the sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. You should not place undue reliance on these statements, which apply only as of the date of this annual report. These forward-looking statements are based on our own information and on information from other sources we believe to be reliable. Actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause differences include, but are not limited to, those discussed under “Item 3. Key Information—D. Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur and our actual results could differ materially from those anticipated in these forward-looking statements. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report completely and with the understanding that our actual future results may be materially different from what we expect.

 

2


 

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 selected consolidated statements of comprehensive income data and consolidated cash flows data for the years ended December 31, 2015, 2016 and 2017, and the selected consolidated balance sheets data as of December 31, 2016 and 2017 set forth below are derived from our audited consolidated financial statements included elsewhere in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, our consolidated financial statements and the related notes. The selected consolidated statements of comprehensive income data and consolidated cash flows data for the years ended December 31, 2013 and 2014, and the selected consolidated balance sheet data as of December 31, 2013, 2014 and 2015 set forth below are derived from our audited consolidated financial statements, which are not included this annual report. The consolidated financial statements have been prepared and presented in accordance with IFRSs.

 

 

 

Year Ended December 31

 

 

 

2013

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

US$

 

 

 

 

 

 

 

(in billions, except for

per share and per ADS data)

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive

   Income Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

228.0

 

 

 

226.6

 

 

 

231.8

 

 

 

230.0

 

 

 

227.5

 

 

 

7.7

 

Operating costs

 

 

(147.3

)

 

 

(148.4

)

 

 

(148.1

)

 

 

(147.6

)

 

 

(146.8

)

 

 

(5.0

)

Gross profit

 

 

80.7

 

 

 

78.2

 

 

 

83.7

 

 

 

82.4

 

 

 

80.7

 

 

 

2.7

 

Operating expenses

 

 

(33.1

)

 

 

(34.0

)

 

 

(33.2

)

 

 

(33.8

)

 

 

(33.9

)

 

 

(1.1

)

Other income and expenses

 

 

0.1

 

 

 

0.6

 

 

 

(0.1

)

 

 

(0.5

)

 

 

(0.1

)

 

 

 

Income from operations

 

 

47.7

 

 

 

44.8

 

 

 

50.4

 

 

 

48.1

 

 

 

46.7

 

 

 

1.6

 

Non-operating income and expenses(1)

 

 

1.4

 

 

 

1.8

 

 

 

1.6

 

 

 

1.3

 

 

 

1.3

 

 

 

 

Income before income tax

 

 

49.1

 

 

 

46.6

 

 

 

52.0

 

 

 

49.4

 

 

 

48.0

 

 

 

1.6

 

Income tax expense

 

 

(6.5

)

 

 

(9.0

)

 

 

(9.1

)

 

 

(7.8

)

 

 

(7.8

)

 

 

(0.2

)

Consolidated net income

 

 

42.6

 

 

 

37.6

 

 

 

42.9

 

 

 

41.6

 

 

 

40.2

 

 

 

1.4

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders of the parent

 

 

41.5

 

 

 

37.0

 

 

 

42.1

 

 

 

40.5

 

 

 

39.0

 

 

 

1.3

 

Noncontrolling interests

 

 

1.1

 

 

 

0.6

 

 

 

0.8

 

 

 

1.1

 

 

 

1.2

 

 

 

0.1

 

 

 

 

42.6

 

 

 

37.6

 

 

 

42.9

 

 

 

41.6

 

 

 

40.2

 

 

 

1.4

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

5.35

 

 

 

4.77

 

 

 

5.42

 

 

 

5.22

 

 

 

5.03

 

 

 

0.17

 

Diluted

 

 

5.34

 

 

 

4.76

 

 

 

5.41

 

 

 

5.21

 

 

 

5.02

 

 

 

0.17

 

Earnings per ADS equivalent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

53.49

 

 

 

47.66

 

 

 

54.19

 

 

 

52.19

 

 

 

50.26

 

 

 

1.70

 

Diluted

 

 

53.40

 

 

 

47.58

 

 

 

54.06

 

 

 

52.11

 

 

 

50.19

 

 

 

1.69

 

3


 

 

 

 

As of December 31

 

 

 

2013

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

US$

 

 

 

 

 

 

 

 

 

 

 

(in billions)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

 

(0.3

)

 

 

6.9

 

 

 

13.3

 

 

 

17.5

 

 

 

15.4

 

 

 

0.5

 

Long-term investments

 

 

15.3

 

 

 

13.1

 

 

 

10.5

 

 

 

7.2

 

 

 

8.1

 

 

 

0.3

 

Property, plant and equipment

 

 

302.7

 

 

 

302.7

 

 

 

296.4

 

 

 

291.2

 

 

 

288.7

 

 

 

9.7

 

Investment properties

 

 

8.0

 

 

 

7.6

 

 

 

7.9

 

 

 

8.1

 

 

 

8.0

 

 

 

0.3

 

Intangible assets

 

 

44.4

 

 

 

42.8

 

 

 

50.4

 

 

 

47.4

 

 

 

54.9

 

 

 

1.9

 

Net defined benefit assets

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.9

 

 

 

 

 

 

 

Total assets

 

 

441.0

 

 

 

446.5

 

 

 

452.8

 

 

 

446.9

 

 

 

450.9

 

 

 

15.2

 

Short-term loans

 

 

0.3

 

 

 

0.6

 

 

 

0.1

 

 

 

0.1

 

 

 

0.1

 

 

 

 

Current portion of long-term loans

 

 

0.3

 

 

 

 

 

 

0.0

 

 

 

 

 

 

 

 

 

 

Long-term loans(2)

 

 

1.4

 

 

 

1.9

 

 

 

1.7

 

 

 

1.6

 

 

 

1.6

 

 

 

0.1

 

Customers’ deposits

 

 

4.8

 

 

 

4.8

 

 

 

4.7

 

 

 

4.6

 

 

 

4.7

 

 

 

0.2

 

Net defined benefit liabilities

 

 

5.5

 

 

 

6.5

 

 

 

7.1

 

 

 

1.5

 

 

 

2.7

 

 

 

0.1

 

Deferred revenue

 

 

3.7

 

 

 

3.4

 

 

 

3.6

 

 

 

3.5

 

 

 

3.6

 

 

 

0.1

 

Total liabilities

 

 

77.8

 

 

 

80.8

 

 

 

83.4

 

 

 

79.9

 

 

 

81.5

 

 

 

2.7

 

Net assets

 

 

363.2

 

 

 

365.7

 

 

 

369.4

 

 

 

367.0

 

 

 

369.4

 

 

 

12.5

 

Capital stock

 

 

77.6

 

 

 

77.6

 

 

 

77.6

 

 

 

77.6

 

 

 

77.6

 

 

 

2.6

 

Equity attributable to stockholders of the

   parent

 

 

358.3

 

 

 

360.8

 

 

 

364.3

 

 

 

360.7

 

 

 

360.9

 

 

 

12.2

 

Noncontrolling interests

 

 

4.9

 

 

 

4.9

 

 

 

5.1

 

 

 

6.3

 

 

 

8.5

 

 

 

0.3

 

 

 

 

Year Ended December 31

 

 

 

 

2013

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

US$

 

 

 

 

 

 

 

 

(in billions, except for

percentages and per share)

 

 

 

 

 

 

 

 

 

 

Consolidated Cash Flows Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

75.3

 

 

 

71.4

 

 

 

76.3

 

 

 

65.0

 

 

 

70.9

 

 

 

2.4

 

 

Net cash used in investing activities

 

 

(49.1

)

 

 

(27.3

)

 

 

(30.4

)

 

 

(21.7

)

 

 

(36.7

)

 

 

(1.2

)

 

Net cash used in financing activities

 

 

(42.5

)

 

 

(35.1

)

 

 

(39.2

)

 

 

(42.5

)

 

 

(36.6

)

 

 

(1.2

)

 

Net increase (decrease) in cash and cash

   equivalents

 

 

(16.3

)

 

 

9.0

 

 

 

6.7

 

 

 

0.8

 

 

 

(2.3

)

 

 

 

 

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin(3)

 

 

35

%

 

 

35

%

 

 

36

%

 

 

36

%

 

 

35

%

 

 

35

%

 

Operating margin(4)

 

 

21

%

 

 

20

%

 

 

22

%

 

 

21

%

 

 

21

%

 

 

21

%

 

Net margin(5)

 

 

18

%

 

 

16

%

 

 

18

%

 

 

18

%

 

 

17

%

 

 

17

%

 

Capital expenditures

 

 

36.4

 

 

 

32.6

 

 

 

25.1

 

 

 

23.5

 

 

 

26.9

 

 

 

0.9

 

 

Depreciation and amortization

 

 

32.2

 

 

 

34.1

 

 

 

33.4

 

 

 

32.5

 

 

 

31.9

 

 

 

1.1

 

 

Cash dividends declared per share

 

 

2.3881

 

(6)

 

4.8564

 

 

 

5.4852

 

 

 

4.9419

 

 

 

4.796

 

(7)

 

0.16

 

(7)

Stock dividends declared per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interest income of NT$563 million, NT$288 million, NT$306 million, NT$189 million and NT$205 million (US$6.9 million) for the years ended December 31, 2013, 2014, 2015, 2016 and 2017, respectively, and interest expense of NT$36 million, NT$46 million, NT$33 million, NT$20 million and NT$22 million (US$0.7 million) for the years ended December 31, 2013, 2014, 2015, 2016 and 2017, respectively.

(2)

Excludes current portion of long-term loans.

(3)

Represents gross profit divided by revenues.

(4)

Represents income from operations divided by revenues.

(5)

Represents net income attributed to stockholders of the parent divided by revenues.

(6)

In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions of NT$2.137 per share, which amounted to an aggregate of NT$16.6 billion, from additional paid-in capital. See “Item 5. Operating and Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and employee bonuses.”

(7)

Dividends for 2017, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2018 and are expected to be declared at our annual general stockholders’ meeting scheduled on June 15, 2018.

4


 

Currency Translations and Exchange Rates

For the convenience of readers, NT dollar amounts used in this annual report for, and as of, the year ended December 31, 2017 have been translated into U.S. dollar amounts using US$1.00=NT$29.64, set forth in the statistical release of the Federal Reserve Board on December 29, 2017. The U.S. dollar translation appears in parentheses next to the relevant NT dollar amount. We make no representation that any New Taiwan dollar amounts or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all. On April 20, 2018, the exchange rate was NT$29.48 to US$1.00.

The following table sets forth, for each of the periods indicated, the low, average, high and period-end exchange rates of the NT dollar, expressed in NT dollar per U.S. dollar. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or any other information to be provided to you.

 

Year Ended December 31

 

Average(1)

 

 

High

 

 

Low

 

 

At Period

End

 

2013

 

 

29.73

 

 

 

30.20

 

 

 

29.93

 

 

 

29.83

 

2014

 

 

30.38

 

 

 

31.80

 

 

 

29.85

 

 

 

31.60

 

2015

 

 

31.80

 

 

 

33.17

 

 

 

30.37

 

 

 

32.79

 

2016

 

 

32.13

 

 

 

33.74

 

 

 

31.05

 

 

 

32.40

 

2017

 

 

30.27

 

 

 

31.19

 

 

 

29.64

 

 

 

29.64

 

October

 

 

30.25

 

 

 

30.44

 

 

 

30.12

 

 

 

30.12

 

November

 

 

30.08

 

 

 

30.21

 

 

 

29.97

 

 

 

29.98

 

December

 

 

29.95

 

 

 

30.05

 

 

 

29.64

 

 

 

29.64

 

2018 (through April 20)

 

 

29.27

 

 

 

29.61

 

 

 

29.03

 

 

 

29.48

 

January

 

 

29.40

 

 

 

29.61

 

 

 

29.05

 

 

 

29.16

 

February

 

 

29.25

 

 

 

29.42

 

 

 

29.03

 

 

 

29.32

 

March

 

 

29.20

 

 

 

29.35

 

 

 

29.10

 

 

 

29.10

 

April (through April 20)

 

 

29.28

 

 

 

29.48

 

 

 

29.14

 

 

 

29.48

 

 

Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.

(1)

Annual averages are calculated using the average of exchange rates on the last day of each month during the period. Monthly averages are calculated using the average of the daily rates during the relevant period.

 

B. Capitalization and Indebtedness

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

Not applicable.

 

D. Risk Factors

Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business, financial condition or results of operations could be seriously harmed.

5


 

Risks Relating to Our Company and the Taiwan Telecommunications Industry

Extensive regulation of our industry may limit our flexibility to respond to market conditions and competition, and our business may suffer.

As a telecommunications service provider in Taiwan, we are subject to extensive regulation. See “Item 4. Information on the Company—B. Business Overview—Regulation” for a discussion of the regulatory environment applicable to us. Any changes in the regulatory environment applicable to us may adversely affect our business, financial condition and results of operations.

For example, the NCC has been focused on promulgating rules related to digital convergence. On August 3, 2016 the NCC published a new policy guideline, declaring to amend the framework governing digital convergence and to develop draft laws. On April 5, 2017 the NCC drafted “the Telecommunications Management Act” and “the Digital Communications Act” and submitted them to the Executive Yuan for review. On November 16, 2017, the Executive Yuan approved the drafts and submitted them to the Legislative Yuan. The draft is being reviewed by the Transportation Committee of the Legislative Yuan now. The draft covers the following key areas: (i) to reduce the entry barrier to the telecommunications markets by changing the original concession/approval system to the approval/registration system; (ii) to make sure that the general market players shall have only ordinary obligations to the minimum necessary extent, provided that certain players possessing a dominant market position as published by the competent authority will be subject to more stringent control measures; (iii) to scale down the range of the right granted to telecommunications business to use private lands and buildings under the existing Telecommunications Act; and (iv) to introduce the internet governance principle whereby self-discipline and public-private partnership are to be the main governance mechanism for the internet. The new draft laws will reduce the entry barrier to the telecommunications market, which is expected to increase the competition in the market. Also, it is likely that the Company will be regarded by the competent authority as possessing a dominant market position in specific telecommunication service markets and will therefore be subject to special obligations involving a higher level of control by the authority. In addition, in view of the scale-down range of the right granted to telecommunications business to use private lands and buildings under the existing Telecommunications Act, the difficulty in the developing infrastructure of telecommunications networks will be greatly increased.

The amendments to the Radio and Television Act, the Cable Radio and Television Act and the Satellite Broadcasting Act were promulgated by the President on January 6, 2016. As these amendments focus primarily on lessening restrictions on cable broadcasting companies’ business operating location and accelerating digital construction in the cable broadcasting industry, we believe that our broadband internet and multimedia on demand, or MOD, businesses may be faced with more vigorous competition. As the newly amended Radio and Television Act (a) prohibits system operators from forcing content providers to offer differential treatment to other platforms in an inappropriate way, and (b) provides a legal basis for licensed shopping channels to be listed on the MOD platform, the amendment is helpful for our MOD to obtain more comprehensive program content. In May 2017, the NCC restarted the amendments to the Radio and Television Act, the Cable Radio and Television Act and the Satellite Broadcasting Act with an aim to remove restrictions on governmental and political parties’ investments in the broadcasting industries. However, the NCC have not released any draft until now, and our MOD business remains subject to such restrictions.

We have been designated by the government as a dominant provider of fixed communications and 3G mobile services within the meaning of applicable telecommunications regulations, and as a result, we are subject to special additional requirements imposed by the NCC. For example, the regulation governing the setting and changing of tariffs allows non-dominant telecommunications service providers greater freedom to set and change tariffs within the range set by the government. If we are unable to respond effectively to tariff changes by our competitors, our competitiveness, market position and profitability will be materially and adversely affected.

In particular, future decreases in tariff rates could immediately and substantially decrease our revenues. As a dominant Type I service provider under the Republic of China Telecommunications Act, or Telecommunications Act, we are constrained in our ability to raise prices. For example, the NCC adopted several rounds of tariff reduction plan, resulting in a number of price reductions in the tariff structures relating to our domestic fixed communications and mobile communications services. On March 8, 2017, the NCC announced a new plan for tariff reductions effective from April 1, 2017 to March 31, 2020. The reduction plan applies to the wholesale tariffs for IP

6


 

peering and domestic leased line services, and to the monthly fees for fixed-line broadband access services (excluding fiber-to-the-home, or FTTH, fiber-to-the-building, or FTTB, asymmetric digital subscriber line, or ADSL, and the services which downlink and uplink speeds both over 100 Mbps). See “Item 4. Information on the Company—B. Business Overview—Regulation” and “Item 5. Operating and Financial Review and Prospects—Overview—Tariff adjustments.” We cannot assure you that we will not be required to further reduce our tariffs again in the future. Any mandatory tariff reductions could have a material adverse effect on our revenues.

In addition, the relevant authority might require us to reduce tariffs over some services through other regulatory measures or administrative planning. For example, on November 4, 2015, the NCC determined to decrease our fixed telecommunications network interconnection fees and it was made retroactive since January 1, 2015. Furthermore, the NCC amended the article 14 and 17 of the Regulations Governing Network Interconnection among Telecommunications Enterprises on November 11, 2017, and announced “Upper Limit on Access Charge for the Third Generation Mobile Telecommunications Operators and Mobile Broadband Operators.” Pursuant to the amendment, starting from November 1, 2017, the tariff in the mobile interconnection fees will decrease over a period of four years, except the telecommunication fees (including interconnection fees) for incoming international long distance, or ILD, calls remain subject to mutual agreement between operators. See “Item 5. Operating and Financial Review and Prospects—Overview—Tariff adjustments.” The regulatory framework within which we operate may limit our flexibility to respond to market conditions, competition or changes.

If we fail to comply with the regulations of the ROC Fair Trade Act, we may be investigated and fined.

As a provider of telecommunication products and services, our business operations are subject to the regulations of the ROC Fair Trade Act, or the FTA, which is administered and enforced by the ROC Fair Trade Commission, or the FTC. The FTA requires, among other things, that the marketing and promotional materials of a business to be true and not misleading. The FTA also prohibits a business from participating or engaging in a cartel or other anti-competitive conduct. The FTC has the authority under the FTA to investigate and, where appropriate, impose fines and penalties on a business that violates any regulations promulgated by the FTA. The consequences of any such violations could have a material adverse effect on our business and results of operations. See “Item 4. Information on the Company—B. Business Overview—Regulation” for a discussion of the FTA applicable to us. In March 2015, the FTC found us liable for providing false and misleading data in advertisement comparing our services against our competitors on our 100 million bits per second, or Mbps, fiber broadband plus TV programs service in the PingTung area. The FTC consequently ordered us to pay a fine of NT$0.8 million, which we paid in March 2015. We have been investigated and penalized by the FTC in the past and may continue to be investigated or penalized by the FTC in the future if we fail to comply with the relevant regulations. As the FTA provides the FTC broad discretion to interpret anti-competition actions and enforce the relevant clauses under the FTA, we are unable to predict whether the FTC would initiate investigation on any of our daily business activities or find us liable for violating the FTA in the future. The investigations of and penalties imposed by the FTC could interrupt our provision of products or services and have a negative impact on our reputation, business operations and results of operations.

If we do not or are unable to obtain and maintain the licenses to operate our business, our business prospects and future results of operations would be adversely affected.

We operate our businesses with approvals and licenses granted by the government. If these approvals or licenses are revoked or suspended or are not renewed, or if we are unable to obtain any additional licenses that we may need to operate or expand our business in the manner we desire, then our financial condition and results of operations, as well as our prospects, will suffer. For example, our 3G mobile services license is valid until December 31, 2018, and the auction for such license was held in the fourth quarter of 2017. In November 2017, we obtained 4G mobile broadband services spectrum in 1800MHz and 2100MHz frequency bands, which are valid until the end of 2030 and 2033, respectively. Furthermore, the NCC may hold the auction for the license of the fifth generation, or 5G, mobile networks in 2020. If we are unable to successfully acquire and maintain the rights to use the licenses or frequency spectrums that we need for our future business operations, our business prospects and future results of operations may be materially and adversely affected. Furthermore, our 3G service license will expire on December 31, 2018, and the NCC will not issue a new 3G license to us in accordance with their policy to cease such 3G service in Taiwan. As a result, we may cease to provide such 3G service by the end of 2018 subject to the discussion with

7


 

the NCC. If some of our 3G service customers are unwilling to migrate by then, we may face complaints from such customers.

Increasing market competition may adversely affect our growth and profitability by causing us to lose customers, charge lower tariffs or spend more on marketing.

As of the date of this annual report, there are five mobile network operators in Taiwan providing 4G mobile broadband services. Each mobile network operator, including us, has been offering aggressive promotional programs to attract consumers, such as unlimited data plans, when many mobile network operators around the world have eliminated unlimited data plans. We cannot assure you that we will be able to raise our revenues from 4G mobile broadband services in light of the intense market competition, which could have a material adverse effect on our business prospects and our future results of operations.

We also face increasing fixed broadband competition from cable operators. Cable operators have been using low-priced internet access packages to attract new customers in specific areas and buildings in Taiwan. The percentage of digitization of cable television networks by December 31, 2017 has already been 99.46%, which increased the availability of high-speed internet services from cable operators. Furthermore, after the NCC relaxed the zoning restrictions on service areas for cable operators on July 27, 2012, new cable operators started to attract subscribers with limited channels and lower fee charges. As a result, we could face increased competition for our broadband access services and MOD IPTV services. If we are unable to compete successfully with the cable operators for broadband access services and MOD businesses, our results of operations could be impacted.

In addition, our over the top, or OTT, business may not able to compete with video streaming providers such as Netflix, Inc. and iQiyi, which invest extensively in contents and productions of original films and TV series. Our OTT customers might be attracted by its massive and exclusive titles, and our OTT business growth might slow down and be limited.

As the mobile data access speeds have increased with newer technologies, such as 4G Long Term Evolution, or LTE, some customers have replaced fixed broadband services with high speed mobile broadband services. Rates of customer growth have declined in our fixed broadband and mobile businesses and may decline further, which may bring about further decreases in tariff rates and necessitate increases in our selling and promotional expenses. Any of these developments could adversely affect our business, financial condition and results of operations.

Our ability to deliver services may be disrupted due to a systems failure, shutdown in our networks, earthquakes or other natural disasters.

Taiwan is susceptible to earthquakes and typhoons. However, we do not carry insurance to cover damage caused by earthquakes, typhoons or other natural disasters or any resulting business interruption. Our services are currently carried through our fixed and mobile communications networks, as well as through our transmission networks consisting of optical fiber cable, microwave, submarine cable and satellite transmission links, which could be vulnerable to damage or interruptions in operations due to natural disasters. For example, in 2017, we recorded losses on property, plant and equipment arising from natural disasters such as earthquakes and typhoons in the amount of approximately NT$1.4 million (US$0.05 million). The occurrence of natural disasters could impact our ability to deliver services and have a negative effect on our results of operations.

Furthermore, we might also be liable for losses claimed from our customers that were incurred from our failure to deliver our services. These potential liabilities could also have a material adverse effect on our results of operations.

We are subject to litigation or other legal proceedings that could expose us to substantial liabilities.

We are from time to time involved in various litigation, arbitration or administrative proceedings in the ordinary course of our business. Any such claims, whether with or without merit, asserted or threatened, could be time-consuming and expensive to defend and could divert our management’s attention and resources. See “Item 4. Information on the Company—B. Business Overview—Legal Proceedings.” We cannot predict the outcome of these

8


 

proceedings, and we cannot assure you that if a judgment is rendered against us in any or all of these proceedings, our financial condition and results of operations would not be materially and adversely affected.

We depend on select personnel and could be affected by the loss of their services.

We depend on the continued service of our executive officers and skilled technical and other personnel. Our business could suffer if we lose the services of any of these personnel and cannot adequately replace them. In particular, we are not insured against the loss of any of our personnel. We may not be able to retain our present personnel or attract additional qualified personnel as and when needed. Moreover, we may be required to increase substantially the number of these employees in connection with any expansion, and there is intense competition for experienced personnel in the Taiwan telecommunications industry. The major three telecom operators in Taiwan, including us, are expanding the Information, Communication and Technology, or ICT, business and may increase the number of their employees as part of this expansion. In addition to telecom operators, some computer design companies and manufacturers are also expanding their business into this area and have been recruiting information technology related employees as well. We cannot assure you that we will be able to successfully attract and retain new information technology related employees. In addition, we may need to increase employee compensation levels in order to attract and retain personnel. We cannot assure you that the loss of the services of any of these personnel would not disrupt our business and operations and materially and adversely affect the quality of our services and harm our reputation.

We may not realize the benefits we expect from our investments, and this may materially and adversely affect our business, financial condition, results of operations and prospects.

We have made significant capital investments in our network infrastructure and information technology systems. In order to continue to develop our business and offer new and more sophisticated services, we intend to continue to invest in different areas as well as new technologies. The launch of new and commercially viable products and services is important to the success of our business. We expect to continue making substantial capital expenditures to further develop our range of services and products.

Commercial acceptance by consumers of the new and more sophisticated services we offer may not occur at the rate or level expected, and we may not be able to successfully adapt these services to effectively and economically meet our customers’ demand, thus impairing the expected return from our investments.

We cannot assure you that services enabled by the new technologies we are implementing, such as Internet of Things, or IoT, Software-Defined Network, or SDN, Network Functions Virtualization, or NFV, LTE WLAN Aggregation, or LWA, License Assisted Access, or LAA, Voice over LTE, or VoLTE, Wi-Fi Calling, Artificial Intelligence, or AI, Augmented Reality, or AR, Virtual Reality, or VR will be accepted by the public to the extent required to generate an acceptable rate of return. In addition, we could face the risk of unforeseen complications in the deployment of these new services and technologies, and we cannot assure you that we will not exceed our estimate of the necessary capital expenditure to offer such services. New services and technologies may not be developed and/or deployed according to expected schedules or may not achieve commercial acceptance or be cost effective.

The failure of any of our services to achieve commercial acceptance could result in additional capital expenditures or a reduction in profitability to the extent that we are required under applicable accounting standards to recognize a charge for impairment of assets. Any such charge could materially and adversely affect our financial condition and results of operations. We recognized an impairment losses for investment properties, equipment and intangible assets in the past. In 2017, we concluded that the recoverable amount representing the fair value less costs to sell investment properties was higher than the carrying amount. Therefore, we recognized a reversal of impairment loss of NT$11.0 million (US$0.4 million) and the amount was recognized only to the extent of impairment losses that had been recognized in prior years.

We cannot assure you that we will be able to continue to maintain control of and consolidate the results of operations of our minority-owned subsidiaries. For example, we consolidate the results of operations of our subsidiary, Senao International Co., Ltd., or Senao, because we have remained control over Senao’s relevant activities. Please refer to Note 3 and Note 15 to our consolidated financial statements included elsewhere in this annual report for details of the relationship between Senao and its parent company. We cannot assure you that we will be able to continue maintaining control over Senao’s relevant activities. If we lose control of our minority-

9


 

owned subsidiary, we will no longer be able to consolidate the results of operations of such subsidiary, which could adversely affect our consolidated results of operations and ability to meet the operating results guidance that we have projected.

We may also from time to time make equity investments in companies, but we cannot assure you of their profitability. We cannot assure you that losses related to our equity investments will not have a material adverse effect on our financial condition or results of operations.

In 2017, our subsidiary, SENAO, evaluated the goodwill that arose in the acquisition of Youth Co., Ltd and its subsidiaries, or Youth, and concluded that the recoverable amount of the goodwill was lower than the carrying value and recognized an impairment loss of NT$9 million (US$0.3 million).

Changes in technology may render our current technologies obsolete or require us to obtain licenses for introducing new services or make substantial capital investments, financing for which may not be available to us on favorable commercial terms or at all.

The telecommunications industry in Taiwan has been characterized by rapid increases in the diversity and sophistication of the technologies and services offered. As a result, we expect that we will need to constantly upgrade our telecommunications technologies and services in order to respond to competitive industry conditions and customer requirements. Developments of new technologies have rendered some less advanced technologies unpopular or obsolete. If we fail to develop, or obtain timely access to, new technologies and equipment, or if we fail to obtain the necessary licenses to provide services using these new technologies, we may lose our customers and market share and become less profitable.

In addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could be significant. In particular, we have made and will continue to make substantial capital expenditures in the near future in order to effectively respond to technological changes, such as the continued expansion of our fiber optic networks and 4G mobile broadband networks. To meet the increasingly robust high-bandwidth requirements of digital convergence services, we continue to expand construction of fiber optic networks, including passive optical networks, or PONs, and optical distribution networks, or ODNs. Also, we continue to deploy 4G mobile broadband base stations and to enhance our 4G mobile broadband coverage and capacity. In November 2017, we obtained 4G mobile broadband services spectrum in 1800MHz and 2100MHz frequency bands. After that, we own three consecutive 20MHz spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data transmission rates. To the extent these expenditures exceed our cash resources, we will be required to seek additional debt or equity financing. Our ability to obtain additional financing on favorable commercial terms will depend on a number of factors. These factors include our financial condition, results of operations, cash flows and the prevailing market conditions in the domestic and international telecommunications industry, the cost of financing and conditions in the financial markets, and the issuance of relevant government and other regulatory approvals. Any inability to obtain the funding for our capital expenditures on commercially acceptable terms could jeopardize our expansion plans and materially and adversely affect our business prospects and future results of operations.

If new technologies adopted by us do not perform as expected, or if we are unable to effectively deliver new services based on these technologies in a commercially viable manner, our revenue growth and profitability will decline.

We are constantly evaluating new growth opportunities in the broader telecommunications industry. Some of these opportunities involve new services for which there are no proven markets, and may not develop as expected. Our ability to deploy and deliver these services will depend, in many instances, on new but unproven technologies. These new technologies may not perform as expected or generate an acceptable rate of return. In addition, we may not be able to successfully develop new technologies to effectively and economically deliver these services, or be able to compete successfully in the delivery of telecommunications services based on new technologies. Furthermore, the success of our IoT services is substantially dependent on the availability of applications and devices that are being developed by third-party developers, and on whether we will be able to achieve a sustainable business model for consumer segments of the market. These applications or devices may not be sufficiently developed to support the deployment of our mobile data services. If we are unable to deliver commercially viable

10


 

services based on the new technologies that we adopt, our financial condition and results of operations may be materially and adversely affected.

As an internet service provider, we may not be able to protect our customers and their information from cyber attacks, nor protect our services from disruptions due to cybersecurity breaches.

As an internet service provider, our system is susceptible to cybersecurity risks, including hijack attacks, phishing attacks, hacker’s intrusions to steal customer’s information and distributed denial-of-service (DDoS) attacks. Our online services such as e-bills and multiple payment options through the internet are also vulnerable to cyber attacks. These attacks may disrupt our services and cause leakage of our customers’ personal information, which may result in significant damage and material adverse effect to our customers and our operations.

Currently, the Legislative Yuan is reviewing the draft of “Information Communication Security Management Act” submitted by the Executive Yuan on April 27, 2017. According to the draft under review by the Legislative Yuan, providers of key basic infrastructure are required to establish, amend and implement the maintenance plan of information communication security, and report the result of the implementation to the NCC. Once the draft “Information Communication Security Management Act” is approved by the Legislative Yuan, it is likely that the NCC regard us as a provider of key basic infrastructure in the communication area and then we will therefore be subject to special obligations. If we fail to comply with such requirements, we may be subject to administrative penalty. Furthermore, the European Union promulgated the General Data Protection Regulation, including strict requirements to protect personal information of customers and suppliers from countries in the European Union. We cannot assure you that our data protection measures are sufficient to prevent any data leakage or disruption of our service due to cyber attacks. We may suffer negative consequences, such as remedial costs, increased cybersecurity protection costs, lost revenues, litigation and reputational damage due to cyber attacks. See “Item 4. Information on the Company—B. Business Overview—Cybersecurity and Personal Information Protection.”

Our largest stockholder may take actions that conflict with our public stockholders’ best interests.

As of December 31, 2017, our largest shareholder, the government of the ROC, through the MOTC, owned approximately 35.29% of our outstanding common shares. Accordingly, the government, through its control over our board, as all non-independent board members were appointed by the MOTC, may continue to have the ability to control our business, including matters relating to:

 

any sale of all or substantially all of our assets;

 

the approval of our annual operation and projects budget;

 

the composition of our senior management;

 

the timing and distribution of dividends;

 

the election of a majority of our directors; and

 

our business activities and direction.

We cannot assure you that our largest shareholder will not take actions that impair our ability to conduct our business competitively or conflict with the best interests of our public stockholders.

Actual or perceived health risks related to mobile handsets and base stations could lead to decreased mobile service usage and difficulties in increasing network coverage and could expose us to potential liability.

According to some published reports, the electromagnetic signals from mobile handsets and cellular base stations may pose health risks or interfere with the operation of electronic equipment. Although the findings of those reports are disputed, actual or perceived risks of using mobile communications devices or of cellular base stations could have a material adverse effect on mobile service providers, including us. For example, our customer base could be reduced, our customers may reduce their usage of our mobile services, we could encounter difficulties in obtaining sites for additional cellular base stations required to expand our network coverage or we may be requested to reduce the number of existing cellular base stations. As a result, our mobile services business may generate less

11


 

revenue and our financial condition and results of operations may be materially and adversely affected. In addition, we could be exposed to potential liability for any health problems caused by mobile handsets and base stations.

Investor confidence in us may be adversely impacted if we or our independent registered public accountants are unable to attest to or express an unqualified opinion on the effectiveness of our internal control over financial reporting.