China Telecom

Presentation at UBS Global Communications Conference

Mr Chang Xiaobing

President of China Telecom

19 November 2003

New York

1

Content

♦ Telecom Industry in China

♦ Performance Review: First 9 months in 2003

♦Overview of the Acquisition

2

Favorable Market Fundamentals

GDP(1)

(RMB in billion)

7,8358,207

8,947

9,731

10,479

1998 1999 2000 2001 2002

CAGR= 7.5%

Telecom Service Revenue(2)

(RMB in billion)

230

279307

357

412

1998 1999 2000 2001 2002

CAGR= 15.7%

Notes: (1) Source: National Statistic Bureau, China

(2) Source: Ministry of Information Industry, China

3

Located in China’s Most Affluent Provinces

Sichuan

GuangxiGuangdong

Anhui

Zhejiang

Jiangsu

Shanghai

JiangxiFujian

Chongqing

Current provincial assets in Listco

Provincial assets slated for acquisition

16.8%25.7%Fixed-line telephone penetration rate3.9%5.3%Internet penetration rate

214.456.9Access line in service (in millions)9701,954GDP per capita (USD)（1）

1,276221Population (in millions) Nationwide ListcoIn 2002

Notes: (1) Calculated by GDP/population, exchange rate: USD1.0=RMB 8.27lculated

Source: National Statistic Bureau and Ministry of Information Industry of China/population, exchange rate: USD1.0=RMB 8.27

4

Strong Drivers Pushing Fixed-line Penetration

Increasing Disposable Incomeper Capita

(RMB)7,161

6,2556,755

2000 2001 2002

Accelerated Urbanization

48.1%46.4% 47.2%

2000 2001 2002

Notes: (1) All figures are for Listco

(2) Source: provincial statistics bureaus

5

Regulatory Framework

Other Regulatory Bodies:

National Development & Reform CommissionState-owned Assets Supervision & Administration Commission Ministry of Finance State Administration of Taxation……

Other Regulatory Bodies:

National Development & Reform CommissionState-owned Assets Supervision & Administration Commission Ministry of Finance State Administration of Taxation……

Provincial communication administrationsProvincial communication administrations

Ministry of Information IndustryMinistry of Information Industry

♦ Regulatory policies

♦ Enforcement

♦ Licensing

♦ Tariff regulation and guidance

♦ Services quality control

♦ Technical standards

♦ Resource allocation

♦ ……

6

Content

♦ Telecom Industry in China

♦ Performance Review: First 9 months in 2003

♦Overview of the Acquisition

7

First Half of 2003: Sustained Healthy Growth

Revenue(RMB in billion)

39.536.9

1H 2002 1H 2003

7.2%

EBITDA(RMB in billion)

23.120.9

1H 2002 1H 2003

10.2%Net Profit

(RMB in billion)

9.38.5

1H 2002 1H 2003

9.2%

8

Operating Revenues by Business Lines

Revenue ShareRevenue

RMB: Million 1H2002 1H2003 Δ %

Among: Local 17,517 18,488 5.5%

Data & Internet 2,511 3,643 45.1%

DLD & IDD 8,749 8,653 -1.1%

3,827 3,662 -4.3%

VAS & Others 1,206 2,322 92.5%

Total 36,868 39,536 7.2%

LL& Interconnection

47.5%

23.7%

6.8%

10.4%

8.3% 3.3%

46.8%

21.9%

9.3%

7.0%5.9%

9.2%

1H2002

1H2003

Data & InternetLocal LD

LL & Interconnection Upfront Others

9

Cost Structure More Rationalized

Operating Expenses Operating Expenses Share

RMB: Million 1H2002 1H2003 Δ

Depreciation & Amortisation

10,030 10,859 8.3%

7,973 6,551 -17.8%

SG&A 3,170 3,527 11.3%

3,393 5,091 50.6%Interconnection

Charges & Others1,404 1,310 -6.7%

Total 25,970 27,338 5.3%

Personnel

38.6%

30.7%

12.2%

13.1%5.4%

39.7%

24.0%

12.9%

18.6%

4.8%

1H2002

1H2003

D&A Network O&S SG&A

Network Operations &Support

Personnel Interconnection & Others

10

Local: Incessant Subscriber Base Expansion

Total Local Subscribers(million)

42.1 44.2 44.9

8.59.1 9.4

3.03.5 3.83.25.4 7.7

2002 1H 2003 Sept 2003

Residential EnterprisePublic phone Wireless local access

56.862.2

65.8

11

Local: Sustained Traffic Growth

Total Local Voice Usage Volume(pulses in billions)

137.8

120.7

104.6

85.3 88.7 88.7

1H 2002 2H 2002 1H 2003 Jan-July2003

Jan-Aug2003

Jan-Sept2003

12

Long Distance: Stable Market Share & Moderated Risk

Traffic Volume Market Share

54.0% 52.6% 52.1%59.2%

63.4% 65.8%

2002 1H 2003 Jan-Aug 2003

DLD IDD

Traffic Volume(minutes in billions)

16.3 17.319.1

29.2

0.6 0.7 0.7 1.1

1H 2002 2H 2002 1H 2003 Jan-Sept 2003

DLD IDD

13

Broadband Internet: Explosive growth Growth

Broadband Subscribers(thousand)

3,517

1,379

2,562

2002 1H 2003 Sept 2003

14

First 9 months of 2003 – Challenges & Opportunities

Our Strategies：♦Market segmentation

and distribution channel enhancement

♦Extended local branch companies’BPR initiatives

♦Strengthened overall budget management and performance evaluation

♦Acquisition of quality assets for external growth

Strong Drivers for Growth：♦ Steady wire-line service with great

potential

♦ Fast growing broadband service, a major driver of growth

♦ Burgeoning VAS，a powerful revenue growth contributor

Challenges from Competitions:♦More significant mobile substitution

♦ Fiercer competition in the long distance market

15

Content

♦ Telecom Industry in China

♦ Performance Review: First 9 months in 2003

♦Overview of the Acquisition

16

Terms of Acquisition

Anhui Telecom, Fujian Telecom, Jiangxi Telecom, Sichuan Telecom, ChongqingTelecom, Guangxi Telecom and their subsidiaries, and certain network management and R&D facilities currently owned by the Parent

Anhui Telecom, Fujian Telecom, Jiangxi Telecom, Sichuan Telecom, ChongqingTelecom, Guangxi Telecom and their subsidiaries, and certain network management and R&D facilities currently owned by the Parent

Target AssetsTarget Assets

Acquisition ConsiderationAcquisition Consideration

Consideration PaymentConsideration Payment

Extraordinary GeneralMeetingsExtraordinary GeneralMeetings

Financial Advisors to theChina TelecomFinancial Advisors to theChina Telecom

Independent FinancialAdvisorIndependent FinancialAdvisor

Valuation MultiplesValuation Multiples

EPS AccretionEPS Accretion

2003 Earning Forecastfor Target Group2003 Earning Forecastfor Target Group

JP Morgan Securities (Asia Pacific) LimitedJP Morgan Securities (Asia Pacific) Limited

Morgan Stanley Dean Witter Asia LimitedChina International Capital (Hong Kong) CorporationMorgan Stanley Dean Witter Asia LimitedChina International Capital (Hong Kong) Corporation

December 15th, 2003December 15th, 2003

P/E: 11.49x(1)P/E: 11.49x(1)

21.1% (3) (4)21.1% (3) (4)

RMB 4.004Bn (Excluding Upfront Connection Fee)RMB 6.352Bn (Including Upfront Connection Fee)(1)RMB 4.004Bn (Excluding Upfront Connection Fee)RMB 6.352Bn (Including Upfront Connection Fee)(1)

Equity Value: RMB 46BnAssumed Net Debt: RMB 34Bn (2)

Enterprise Value： RMB 80 Bn

Equity Value: RMB 46BnAssumed Net Debt: RMB 34Bn (2)

Enterprise Value： RMB 80 Bn

Initial consideration: RMB 11BnDeferred consideration: RMB 35BnInitial consideration: RMB 11BnDeferred consideration: RMB 35Bn

Notes: (1) Otherwise indicated, all information related to valuation hereafter excluding upfront connection fee of 2.348 billion RMB(2) As of June 30th, 2003(3) Calculation based on 20 trading days average closing price HK$2.27 as of Oct 24th, 2003; P/E ratio of target company is based on company’s earnings forecast and acquisition consideration(4) EPS estimate for ListCo is based on the average of estimated EPS from Morgan Stanley and CICC research department. Illustrative purpose only, it does not reflect Company’s guidance on earnings

17

Wire-line Telephone Service Experienced Rapid Growth

Local Revenue(1)

(RMB in billion)

10,270

19,15917,096

2001 2002 1H 2003

Access Lines in Services(million)

45.07

39.93

32.36

6.53

4.05

1.26

2001 2002 1H 2003Access lines in service Wireless local access

10.8%13.4% 15.1%

Wire-line penetration rate

Local MOU(2)

(pulses/month/per subscriber)

207232

263

2001 2002 1H 2003

Note: (1) Upfront connection fee excluded

(2) Excluding Dial-up minutes

18

Data and Internet Services

Revenue of Data & Internet Servicesand % of Revenue

(RMB in million)

650

1,139

841

308

642

575

2001 2002 1H 2003

Internet Data

45.4%

1,225

1,781

1,1493.8%

1.8%

2.0%

5.2%

1.9%

3.3%

6.3%

1.7%

4.6%

Broadband Subscribers(thousand)

1,031

495

87

2001 2002 1H 2003

CAGR= 420.7%

19

Risk in Long Distance Service Moderated

6,342 6,167

3,141

Revenue of Long Distance Service(RMB in million)

5,949 5,758

2,941

200

409393

2001 2002 1H 2003

DLD IDD

6,167

3,141

6,342

19.8%

18.1%

17.2%

Total long distance revenue share

Long Distance Market Share(1)

55.7% 51.8%

65.1%59.0%68.2%

68.2%

2001 2002 1H 2003

DLD IDD

Long Distance Traffic Volume(minutes in millions)

12,07013,168

6,790

77

169155

2001 2002 1H 2003

DLD IDD

9.1%12,22513,337

6,867

Note: (1) Market share of international long distance service is based on outgoing call minutes long distance

20

Realization of Operating Synergy

Reduce CostReduce Cost

Interconnection revenue decreased by 13MM, interconnection expense decreased by 140MM in the first half of 2003 on a pro forma basis

Achieve Management SynergyAchieve Management Synergy

Centralize investment planning, procurement and financial managementLaunch business process reengineering initiativesImprove centralized management of network operation and R&D capabilities Wider implementation of employee incentive programs

21

Significant Earnings Accretion

EPS excluding Upfront Connection Fees(1)(2)

(HK$)

0.195

0.161

Listco Pro Forma

Accretion: 21.1%

Note: (1) Borrowing interest rate 5.18%, deposit interest rate 1.8%, income tax rate33%(2) EPS estimates for ListCo is based on average estimated EPS from Morgan Stanley and CICC

research department. Illustrative purpose only, it does not reflect Company’s guidance on earnings

22

Improvement of Capital Structure,Enhancement of Shareholder Return

Pro Forma

Total Debt/Total Capital(1)(2)

12.7%

37.2%

Listco Pro Forma

Net Debt/EBITDA(1)(2)(3)

1.29

0.12

Listco Pro Forma

Note: (1) As of June 30, 2003(2) Total Debt/Total Capital = Total Debt/(Total Debt + Deferred Revenue + Shareholders’ Equity +

Minority Interest); Total Debt = Long-term Debt + Short-term Debt + Financial Lease; Net Debt = Total Debt - Cash

(3) We annualize EBITDA of 1H2003 to get Net Debt/EBITDA

China Telecom

Presentation at UBS Global Communications Conference

19 November 2003

New York