Investment holding companyInvestment holding companyInvestment holding company0.010.01falseFYCHINA MOBILE LTD /ADR/0001117795--12-31CNCNNONEtrue0000000000Charges for use of tower assets include the non-lease components charges (maintenance, certain ancillary facilities usage and related support services) for use of telecommunications towers and variable lease payments not based on an index or a rate, which are recorded in profit or loss as incurred.For the year ended December 31, 2021, short-term lease payments and lease payments of low-value assets amounted to RMB6,576 million (2020: RMB4,462 million; 2019: RMB6,757 million), and variable lease payments not based on an index or a rate, which are recorded in profit or loss as incurred, amounted to RMB7,160 million (2020: RMB7,770 million; 2019: RMB8,186 million).Charges for use of lines and network assets and other assets mainly include the non-lease components charges and the lease components charges for lease contracts that are exempted from recognition of right-of-use assets and lease liabilities, such as short-term lease payments, lease payments of low-value assets and variable lease payments not based on an index or a rate, which are recorded in profit or loss as incurred.The provision for Hong Kong profits tax is calculated at 16.5% (2020: 16.5%; 2019: 16.5%) of the estimated assessable profits for the year ended December 31, 2021.The provision for enterprise income tax in the mainland of China and other countries and regions has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the regions in which the Group operates. The Company’s subsidiaries operate mainly in the mainland of China. The provision for the PRC enterprise income tax is based on the statutory tax rate of 25% (2020: 25%; 2019: 25%) on the estimated assessable profits determined in accordance with the relevant income tax rules and regulations of the PRC for the year ended December 31, 2021. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM
20-F
 
 
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(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, 2021
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:
1-14696
 
 
China Mobile Limited
(Exact Name of Registrant as Specified in Its Charter)
 
 
N/A
(Translation of Registrant’s Name into English)
Hong Kong, China
(Jurisdiction of Incorporation or Organization)
60th Floor, The Center
99 Queen’s Road Central
Hong Kong, China
(Address of Principal Executive Offices)
Grace Wong
Company Secretary
China Mobile Limited
60th Floor, The Center
99 Queen’s Road Central
Hong Kong, China
Telephone: (852) 3121-8888
Fax: (852) 2511-9092
(Name, Telephone,
E-mail
and/or Facsimile Number and Address of Company Contact Person)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange
on Which Registered
None
 
None
 
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary Shares
(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, 2021, 20,475,482,897
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  ☒    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  ☒
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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 every Interactive Data File required to be submitted 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 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  
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.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒
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             Other  ☐
            by the International Accounting Standards Board            
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  ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
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  ☐
 
 
 

TABLE OF
CONTENTS
China Mobile Limited
 
 
 
 
  
Page
 
  
 
1
 
 
  
Item 1.
 
  
 
2
 
Item 2.
 
  
 
2
 
Item 3.
 
  
 
2
 
Item 4.
 
  
 
19
 
Item 4A.
 
  
 
43
 
Item 5.
 
  
 
43
 
Item 6.
 
  
 
55
 
Item 7.
 
  
 
59
 
Item 8.
 
  
 
63
 
Item 9.
 
  
 
64
 
Item 10.
 
  
 
64
 
Item 11.
 
  
 
73
 
Item 12.
 
  
 
74
 
 
  
Item 13.
 
  
 
75
 
Item 14.
 
  
 
75
 
Item 15.
 
  
 
75
 
Item 16A.
 
  
 
76
 
Item 16B.
 
  
 
76
 
Item 16C.
 
  
 
76
 
Item 16D.
 
  
 
76
 
Item 16E.
 
  
 
76
 
Item 16F.
 
  
 
76
 
Item 16G.
 
  
 
77
 
Item 16H.
 
  
 
78
 
Item 16I.
 
  
 
78
 
 
  
Item 17.
 
  
 
79
 
Item 18.
 
  
 
79
 
Item 19.
 
  
 
79
 
 

Forward-Looking Statements
This annual report on Form
20-F
contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to:
 
   
our business objectives and strategies, including those relating to the development of our terminal procurement and distribution business;
 
   
our operations and prospects;
 
   
our network expansion and capital expenditure plans;
 
   
the expected impact of any acquisitions or other strategic transactions;
 
   
our provision of services, including fifth generation, or 5G, services, wireline broadband services and services based on technological evolution, and our ability to attract customers to these services;
 
   
the planned development of future generations of mobile technologies, including 5G technologies, and other technologies and related applications;
 
   
the anticipated evolution of the industry chain of 5G and future generations of mobile technologies, including future development in, and availability of, terminals that support our provision of services based on 5G and future generations of mobile technologies, and testing and commercialization of future generations of mobile technologies;
 
   
the expected benefit from our collaboration with China Broadcasting Network Corporation Ltd., or China Broadcasting, with respect to the
co-construction
and sharing of 5G network;
 
   
the expected benefit from our investment in and any arrangements with China Tower Corporation Limited (or China Tower, formerly known as China Communications Facilities Services Corporation Limited);
 
   
the expected impact of the implementation in the mainland of China of the policy of “speed upgrade and tariff reduction” and the cancellation of roaming tariffs on our business, financial condition and results of operations;
 
   
the expected impact of tariff changes on our business, financial condition and results of operations;
 
   
the potential impact of restrictions, sanctions or other legal or regulatory actions under relevant laws and regulations in various jurisdictions on our telecommunications equipment suppliers and other business partners;
 
   
the potential impact of the outcome of the State Administration for Market Regulation’s investigation on us;
 
   
the impact of the continued development of the coronavirus disease, or
COVID-19,
a disease caused by a novel strain of coronavirus, on the PRC economy and our operations and financial performance;
 
   
the expected impact of new service offerings on our business, financial condition and results of operations; and
 
   
future developments in the telecommunications industry in the mainland of China, including changes in the regulatory and competitive landscape.
The words “aim,” “anticipate,” “believe,” “could,” “endeavor,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “strive,” “target,” “will” and similar expressions, as they relate to us, are intended to identify certain of these forward-looking statements. We do not intend to update these forward-looking statements and are under no obligation to do so.
These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including the risk factors set forth in “Item 3. Key Information—Risk Factors.”
 
-1-

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.
Risk Factors
The following factors, and those factors described in our other reports submitted to, or filed with, the SEC, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf, and such factors may have a material adverse effect on our business, financial condition, results of operations, prospects and the value of our securities.
Risks Relating to Our Business
The increasing competition from other telecommunications services providers and competitors in related industries and changes in the competitive landscape of the telecommunications industry in the mainland of China may reduce our market share and decrease our profit margin
.
We may face increasing competition from other telecommunications services providers in the mainland of China. Principal participants in the telecommunications industry in the mainland of China include China Telecom Corporation Limited, or China Telecom, China Unicom (Hong Kong) Limited, or China Unicom, China Broadcasting and us. With the Ministry of Industry and Information Technology, or the MIIT, granting the basic telecommunications service operating permit for 5G digital cellular mobile service to China Mobile Communications Group Co., Ltd., or CMCC, our parent company, the parent companies of China Telecom and China Unicom, and China Broadcasting on June 6, 2019, the competition with respect to the planning and promotion of 5G development and commercialization has been increasing due to market saturation and tariff reduction.
The PRC government has extended favorable regulatory policies to our primary competitors in order to help them become more viable competitors to us. In terms of 5G services, as compared to the frequency bands allocated to our competitors, those available to us are not widely used in the telecommunications industry and may pose more technical and operational challenges initially. Those asymmetrical and other regulatory measures could adversely affect our competitiveness and increase competition in the PRC telecommunications industry. See “—Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could adversely affect our competitiveness or enhance competition in the telecommunications industry.” Furthermore, China Telecom and China Unicom have also entered into strategic cooperation arrangements to promote resource-sharing in certain aspects of business operations, including the construction of 5G network, which may strengthen their competitiveness in the market, and they could enter into further cooperation in the future. For further information, see “Item 4. Information on the Company—Business Overview—Competition.” Such cooperation may significantly change the competitive landscape of the telecommunications industry in the mainland of China. In addition, our competitors and we have been rolling out 5G tariff plans to attract customers, and some of the plans offered by our competitors may be more attractive to customers than ours. Accordingly, we cannot assure you that we will be able to compete effectively, or that such competition will not materially and adversely affect our business, financial condition and results of operations.
In order to adapt to the market changes and as one of our marketing strategies, we may, from time to time, offer promotion programs to our customers with lowered tariffs, which may negatively impact our revenues and profit margins. In the meantime, our competitors are expanding their network coverage and offering discounts to their tariff plans, which may affect our ability to retain our customers. As a result of the above, we cannot assure you that we will not offer discounts comparable to, or more favorable than, those offered by our competitors or experience increases in churn rates as competition intensifies, which may materially and adversely affect our results of operations and profit margin. Moreover, we cannot assure you that any potential change, and in particular, any further restructuring in the competitive landscape of the telecommunications industry in the mainland of China, would not have a material adverse effect on our business, financial condition and results of operations.
 
-2-

Additionally, the PRC government has adopted regulatory measures to encourage competition in the telecommunications industry, including stringent measures to enforce the PRC Anti-Monopoly Law. Any amendments to the PRC Anti-Monopoly Law or any changes to the PRC anti-unfair competition regime, in particular those on the telecommunications industry, may subject us to more stringent anti-monopoly and anti-unfair competition regulation. As a result of the regulatory measures, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition.
Moreover, the evolution of telecommunication technologies and services has changed the competitive landscape in the telecommunications industry in the mainland of China. The intensified competition in new products and services arising from technological advances could reduce our tariff, increase our customer acquisition cost and decrease our market share as customers choose to receive telecommunications and related services from other providers. In the meanwhile, the competition from
non-traditional
telecommunications services providers, such as Internet service providers, mobile software and applications developers and equipment vendors, is also increasing. These new competitors, leveraging on their advantages in new technology and services, compete against us in telecommunications business by offering mobile Internet access and Over The Top services, such as instant messaging, Voice over Internet Protocol, or VoIP, services, or audio or video content services delivered over the Internet, and pose challenges to us in retaining existing customers and market position. In addition, the strategic cooperation between Internet service providers and telecommunications operators is reshaping the competition in the telecommunications market. See “—Changes in the technologies and business models of the telecommunications industry may render our current technologies and business model obsolete, and we may encounter difficulties and challenges in developing and implementing new technologies and services.”
Furthermore, the PRC government has implemented a number of measures that permit certain operators approved by the MIIT to lease telecommunications infrastructure and repackage mobile services for sale to end-customers. Since May 1, 2018, subject to MIIT’s approval,
non-state-owned
companies, state-owned companies and foreign invested enterprises are allowed to lease mobile services from China Telecom, China Unicom or us and provide mobile services to end-customers after repackaging these services. As of December 31, 2021, 17 companies had entered into agreements with us for provision of mobile services to
end-customers.
We face intense competition from these new mobile network operators in light of such policy and decisions by the MIIT. In particular, increased competition may cause tariff to further decline, which could in turn materially and adversely affect our business, financial condition and results of operations.
Our ability to compete effectively will also depend on how successfully we respond to various factors affecting the development of the telecommunications industry in the mainland of China, including changes in consumer preferences and demand for existing and new services. We cannot assure you that the measures we are taking in response to these competitive challenges will achieve the expected results.
Changes in the technologies and business models of the telecommunications industry may render our current technologies and business model obsolete, and we may encounter difficulties and challenges in developing and implementing new technologies and services.
In recent years, the telecommunications industry has been characterized by rapidly changing and increasingly complex technologies. Accordingly, although we strive to keep our technologies up to international standards, the mobile technologies that we currently employ may become obsolete. Moreover, the rapid development in technologies, services, products and business models has also accelerated the convergence of local, long-distance, wireless, cable and Internet communication services, resulted in new competitors entering into the telecommunications market and changed customer behaviors. We are thus required to develop and implement leading technologies, offer innovative services and adjust our business strategies in order to adapt to and maintain our share of the evolving value chain of the telecommunications industry. In order to meet the challenges posed by changes in the technology and business models of the telecommunications industry, we have striven to promote the transition from telecommunications services to information services, from the primarily “Customer” (To C) market to all four CHBN markets (namely, the “customer” market, the “home” market, the “business” market and the “new” market), and from being resource-driven to being innovation-driven. We cannot assure you that the measures we are taking in response to those challenges will achieve the results we desire.
We currently provide certain Internet-related services, including home digital services, mobile payment, digital content and other applications and information services. The development of our Internet-related services depends on our ability to continue to expand and innovate our Internet-related services and take advantage of our strategic cooperation with renowned Internet service providers. However, our competitors, including telecommunications operators, Internet service providers and technology companies, have also been developing the same services, which has increased the competition in this area. If we cannot develop or expand our Internet-related services as we anticipated, or if we develop or expand our Internet-related services at a pace slower than that of our competitors, our Internet-related services may not be as successful and we may not be able to maintain steady growth in our revenue from our Internet-related services.
 
-3-

As the implementation of our business strategies, as well as the development of new businesses, such as Mobile Internet, Internet of Things, or IoT, Information and Communication Technology, or ICT, Cloud Computing and Big Data, require significant time, financial and other resources and involve substantial risks, we may not be able to successfully implement our strategies, launch or develop such new businesses in time, or achieve the expected benefits. We may also encounter unexpected technological difficulties in developing and implementing new technologies and, as a result, may incur substantial costs or services disruptions, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our tariff reduction and future policy developments in the telecommunications industry in relation to tariff reduction may continue to adversely affect our financial conditions.
From time to time, we need to adjust our tariff plans as part of our business strategy and in some cases in accordance with PRC national policies, and such adjustments may have a material adverse impact on our revenue and profitability. The PRC government first introduced
the new national policy of “speed upgrade and tariff reduction” in May 2015 and promulgated initiatives in furtherance of such policy every year. In its 2019 work report, the PRC government introduced further “speed upgrade and tariff reduction” measures, including directives to (i) further reduce the broadband tariffs for small and medium enterprises by 15% on average and the tariffs for handset data by no less than 20% on average, and (ii) implement mobile number portability programs, which allow customers to switch mobile carriers while retaining their numbers, in the mainland of China by the end of 2019. The PRC government further required (i) in its 2020 work report, a 15% reduction in the average broadband and dedicated line tariff and (ii) in its 2021 work report, a 10% reduction in the average broadband and dedicated line tariff for small and medium enterprises.
Since May 2015, in response to the expectations of the general public and customers and in order to implement the said national policy, we have, in addition to continuous enhancement of network capacity and increase of network speed, took a series of tariff reduction measures, including but not limited to the launch of an unused data traffic carry-over program for our mobile monthly plans in October 2015, which allows the customers to carry over their monthly plan’s remaining unused data traffic to the following month, preferential Internet dedicated line tariffs for small and medium enterprises since May 2017, cancellation of all handset domestic long-distance and roaming tariffs since September 2017 and cancellation of tariffs for domestic data roaming since July 2018. In 2019, we reduced the broadband tariffs for small and medium enterprises by 39% and the tariffs for handset data by 47% in the aggregate. In 2020, we continued to implement the “speed upgrade and tariff reduction” policy and launched more preferential tariff plans that reduced the tariffs for handset data by 27.1% in the aggregate. In 2021, we continued to implement tariff reduction to benefit corporate and individual customers. See “Item 4. Information on the Company—Business Overview—Tariffs” for further information.
Such measures have asserted pressure on the growth of revenue from wireless data traffic services and wireline broadband services, which in turn had a negative impact on our overall revenue and profitability. As we might be required to further adjust our tariffs or take other initiatives under the “speed upgrade and tariff reduction” policy or other similar policies to be issued by the PRC government in the future, we cannot assure you that our financial condition and results of operations would not be materially and adversely affected by these policies.
We may encounter difficulties and challenges in the commercialization of 5G technologies.
We have been actively engaged in
5G-related
research and development, or R&D, activities and commercialization of such technologies. We are also involved in setting 5G technological standards. See “Item 4. Information on the Company—Business Overview—Research and Development—Setting Technical Standards and Promoting Industry Development for 5G Commercialization.” In June 2019, the MIIT granted the operating permit for 5G digital cellular mobile service to the respective parent companies of China Telecom, China Unicom and us and China Broadcasting. Since then, exploring business models that will realize the commercial potentials of 5G technologies became the core of our
5G-related
work, and we have been working together with various industry players in planning and promoting 5G development and driving the optimization of standards, advancements in devices, enrichment of applications and construction of the ecosystem in respect of 5G. We began providing 5G services in November 2019. As of December 31, 2021, we had 387 million of 5G package customers.
 
-4-

Delivery and expansion of our commercial 5G services require us to devote financial and operational resources, and we have made and expect to continue to make substantial investments in the construction of the infrastructure of our 5G network. However, there exist significant uncertainties in market reception of our 5G services, competitive landscape, the amount of time and financial and operational resources needed to improve technologies and to acquire the requisite knowhow, the capital expenditures needed to construct the necessary infrastructure, our suppliers’ ability to manufacture equipment and devices supporting the infrastructure of 5G system as well as future expansion of 5G technologies in the vertical industries. In particular, to enhance our competitive position in the 5G market, we may offer tariff promotions to attract and retain customers, which may affect our profitability and results of operations. Moreover, the PRC government may require reduction in the tariffs of our 5G services. See “ —Our tariff reduction and future policy developments in the telecommunications industry in relation to tariff reduction may continue to adversely affect our financial conditions.” Therefore, we cannot assure you that we will be able to expand and profit from our 5G services.
In addition, our primary competitors tend to benefit from certain asymmetrical regulatory measures in connection with frequency band allocation. See “ —Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could adversely affect our competitiveness or enhance competition in the telecommunications industry.” Consequently, those available to us are not widely used in the telecommunications industry and may pose more technical and operational challenges to us in the initial stages of rendering 5G services. Therefore, as compared to our competitors, we may not be in the best position to compete effectively against them. Meanwhile, we are in the process of making technical adjustments to our existing network and reallocating certain frequency bands previously used for 4G services to 5G services. Any significant delay in such reallocation among our own networks could add time pressure on or cause additional costs in the commercialization of 5G technologies and our 4G services may also be temporarily discontinued in certain areas or otherwise disrupted during such transition. Further, China Telecom collaborated with China United Network Communications Corporation Limited, or CUCL, a wholly-owned subsidiary of China Unicom, in 2019, and rolled out 5G network
co-building
and
co-sharing,
which enables them to leverage on their mutually complementary network and spectrum resources to save costs on network construction, operation and maintenance. Such collaboration may further change the competitive landscape of the telecommunications industry in the mainland of China and adversely affect our business, financial condition and results of operations.
If we are unable to provide 5G services in a commercially viable manner or the business models for our 5G services fail to deliver desirable results, the expected benefits from our significant investment in the R&D and commercialization of 5G technologies and relevant infrastructure construction would not be fully realized or if at all, which in turn could materially and adversely affect our business, financial conditions and results of operations.
Transactions in our ordinary shares by U.S. persons beyond specified dates are prohibited and our American Depositary Shares (“ADSs”) were delisted.
On November 12, 2020, the President of the United States signed Executive Order 13959 (as subsequently amended on January 13, 2021, the “EO 13959”) to (i) prohibit (the “Prohibitions”) any transaction by any U.S. person, subject to certain divesture and other exemptions, in publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities (“Restricted Securities”), of certain Chinese companies (each, a “Restricted Company”), (ii) prohibit possession of the foregoing securities by a U.S. person after November 11, 2021 and (iii) authorize the United States Secretary of the Treasury to publicly list an entity as a Restricted Company, with respect to which the Prohibitions shall take effect on the date that is 60 days after such listing. The United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) maintains a list of companies identified as a Restricted Company (the “Restricted List”) and, on January 8, 2021, added the Company to the Restricted List. According to guidance issued by OFAC (available at https://home.treasury.gov/system/files/126/ccmc_gl1a_01272021_1.pdf), the Prohibitions with respect to the Company took effect on March 9, 2021, 60 days after the Company was added to the Restricted List.
In addition, on December 31, 2020, the New York Stock Exchange (the “NYSE”) announced that it had determined to commence proceedings to delist our ADSs on the basis that we were no longer suitable for listing in light of the EO 13959. On January 4, 2021, the NYSE announced that, in light of further consultation with relevant regulatory authorities, the NYSE no longer intended to move forward with the delisting action in relation to our ADSs. On January 6, the NYSE announced that it had determined (the “Determination”) to
re-commence
proceedings to delist our ADSs to comply with the EO 13959 and suspended trading in our ADSs on January 11, 2021. Separately, the Depository Trust & Clearing Corporation’s National Securities Clearing Corporation (“NSCC”) suspended trade capture activities through its Universal Trade Capture (“UTC”) and Continuous Net Settlement (“CNS”) systems for our ADSs after trading ended on January 8, 2021. As a result, our ADSs can no longer be traded in any U.S. market that relies on NSCC’s UTC and CNS systems, including the
over-the-counter
(“OTC”) markets.
 
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On January 20, 2021, we filed with the NYSE a written request for a review of the Determination by a Committee of the Board of Directors of the NYSE (the “Committee”). The Company requested that the Committee reverse the Determination and stay the trading suspension of the ADSs pending review of the Determination. On May 6, 2021, the Committee affirmed the Determination. On May 7, 2021, the NYSE filed a Form 25 with the SEC to strike the Company’s ADSs from listing and registration. The delisting of the Company’s ADSs became effective on May 18, 2021. In light of the delisting, we terminated our ADSs program subsequently on September 13, 2021 and therefore, we no longer have any ADSs outstanding.
On June 3, 2021, the new President of the United States signed Executive Order 14032 (the “EO 14032”), which amended the EO 13959 and extended the effective date of the Prohibitions to August 2, 2021. Transactions of our Restricted Securities made solely to effect the divestment are allowed until June 3, 2022. The foregoing events may adversely affect investor sentiment toward our Company, regardless of our actual operating performance. As a result, the value and liquidity of our securities may be materially and adversely affected.
We are subject to increased regulatory scrutiny and compliance costs as a result of being listed on multiple stock exchanges.
In January 2022, we completed an issuance of additional ordinary shares which are subscribed for in Renminbi by investors in the PRC, listed on the Shanghai Stock Exchange and traded in Renminbi (the “RMB Shares”). As a result of the completion of the offering of our RMB Shares, we became subject to the applicable laws, rules and regulations governing public companies listed in the mainland of China, in addition to the various laws, rules and regulations that we are currently subject to in Hong Kong and the United States. The listing and trading of our securities in multiple jurisdictions and multiple markets may lead to increased compliance costs for us, and we may face scrutiny by regulatory authorities in these jurisdictions and markets.
We are subject to risks associated with our suppliers, business partners and other stakeholders in the supply chain of semiconductor and telecommunications industry, which could be adversely affected by restrictions, sanctions or other legal or regulatory actions under relevant laws and regulations in various jurisdictions which in turn could adversely affect the supply chain and our business operations.
We procure our telecommunications network equipment, related maintenance and technical support and other equipment and service from certain PRC and overseas suppliers. See “Item 4. Information on the Company—Business Overview—Mobile Networks.” We also transact with our business partners who operate globally. Therefore, both we and our business partners are subject to the laws and regulations in various jurisdictions and international organizations. The relevant jurisdictions or international organizations include, among others, the United States, the European Union (“EU”) and the United Nations. Any restrictions, sanctions or other legal or regulatory actions could cause disruptions or other material difficulties in their business activities to the extent any government of the relevant jurisdictions imposes any restrictions on their import and export activities, or sanctions or other legal or regulatory actions against the suppliers and other business partners in connection with their business activities. Such disruptions could prevent our suppliers from delivering equipment and services to us in accordance with the agreed terms of supply. This could negatively affect our business operations. We may not be able to find suitable alternative suppliers for the affected equipment or services in a timely manner. Even if we are able to find alternative suppliers, the commercial terms may not be comparable, and we could therefore be subject to a higher procuring cost. Furthermore, if any of our suppliers raises their prices due to an increase in international trade tariffs, we could be subject to a higher cost in procuring the relevant products. We may experience a significant delay in implementing the part of our business plans that relies on delivery of the affected equipment and services and difficulties in timely improving our services that rely on those suppliers for upgrading our networks and related software and applications.
Furthermore, the significant disruptions in the supply chain of semiconductor and telecommunications industry may indirectly impact the growth of our Internet services and information and application services. For example, the sanctions against certain mobile phone manufacturers may adversely affect the popularity of and users’ option to upgrade to 5G mobile phones, which could indirectly adversely affect our 5G business as such users potentially could have been customers of our 5G package.
 
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Any of the above and other consequences could materially adversely affect our business, results of operations, financial condition and prospect.
Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could adversely affect our competitiveness or enhance competition in the telecommunications industry.
The PRC government has extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors to us. For example, the MIIT has decided to make asymmetrical changes, effective January 1, 2014, to the public telecommunications network interconnection settlement standards of basic telecommunications operators in the mainland of China. As a result of these changes, when mobile users of China Telecom and China Unicom and our mobile users in the mainland of China (excluding
TD-SCDMA
users with certain specified prefix numbers) make calls to each other, the settlement charges payable by China Telecom and China Unicom to us were adjusted from RMB0.06/minute to RMB0.04/minute, while the settlement charges payable by us to China Telecom and China Unicom remained at RMB0.06/minute. The MIIT expects to assess the above interconnection settlement policy once every two years based on the development conditions of the telecommunications market and will make adjustments when appropriate. See “Item 4. Information on the Company—Business Overview—Interconnection.” Additionally, in 2016, the MIIT approved China Telecom and China Unicom to refarm their respective spectrum by reallocating the frequencies initially allocated to 2G and 3G services to 4G services. Compared to the higher frequencies allocated to 4G, frequencies allocated to 2G and 3G services are lower and therefore can reach farther with less penetration loss. As a result, spectrum refarming would help such operators improve overall network quality at a lower cost. We received the permission to provide 4G services based on the LTE FDD technology on April 3, 2018. In addition, our parent company, CMCC, has been approved by the MIIT to provide 4G services on frequency bands initially allocated to 2G and 3G services until December 31, 2023. We cannot assure you that we will be able to get more spectrum or maintain the existing spectrum upon the expiry of such approval.
Constrained by the frequency spectrum available to us, we may not effectively compete with these operators in our provision of 4G services. See “—Our future network capacity growth may be constrained by the frequency spectrum available to us.” Moreover, in December 2018, the MIIT granted CMCC, our parent company, a permit to use the frequency bands of 2515MHz-2675MHz and 4800MHz-4900MHz for its 5G system in the mainland of China. The MIIT allocated the frequency bands of 4900-4960MHz, 3400-3500MHz and 3500-3600MHz to China Broadcasting and the respective parent companies of China Telecom and China Unicom, respectively, for their own 5G programs. In November 2019, the MIIT allocated the frequency bands of 3300-3400MHz to China Broadcasting and the respective parent companies of China Telecom and China Unicom for their joint use in indoor 5G coverage. In April 2020, the MIIT
re-designated
the 700MHz frequency band, which China Broadcasting had been using for radio and television broadcasting, for mobile communication purposes, thus allowing China Broadcasting to use such frequency band for its 5G program. Our cooperation with China Broadcasting requires collaboration between both parties in various aspects and is therefore subject to uncertainty. See “—We may encounter difficulties and challenges in the commercialization of 5G technologies.”
The implementation of asymmetrical and other regulatory measures could adversely affect our competitiveness or enhance competition in the telecommunications industry, which could in turn significantly reduce our revenues and profitability, and our financial condition and results of operations also may be materially and adversely affected.
Cyber attacks could have a material adverse effect on our business, results of operations and financial condition.
Cyber attacks, including through the use of malware, computer viruses, distributed denial of services attacks, credential harvesting and other means for obtaining unauthorized access to or disrupting the operation of our telecommunications networks and systems and those of our suppliers, vendors and other service providers, could have an adverse effect on our business. Cyber attacks may cause equipment failures, loss of information, data security breaches, including sensitive personal information of customers or employees or valuable technical and marketing information, as well as disruptions to our operations or our customers’ operations. We devote significant resources to telecommunications network security, data security and other security measures to protect our systems and data, such as deploying network protection devices, performing regular security assessment and anonymizing personal data. See “Item 4. Information on the Company—Business Overview—Information Systems” for details. We cannot assure you that the security measures we have implemented will not be bypassed or otherwise can fully protect the integrity of our telecommunications network, including our mobile network. The economic costs to us to eliminate or alleviate cyber attacks could be significant and may be difficult to estimate or calculate because the loss may differ based on the identity and motive of the perpetrators, which are often difficult to identify. Further, the perpetrators of cyber attacks are not restricted to specific groups or persons. These attacks may be committed by company employees or external actors operating in any geography, including jurisdictions where law enforcement measures to address such attacks are unavailable or ineffective, and may even be launched by or at the behest of nation states. While, to date, we have not been subject to cyber attacks which, individually or in the aggregate, have been material to our operations or financial condition,
the preventive actions we take to reduce the risks associated with cyber attacks, including protection of our systems and networks, may be insufficient to repel or mitigate the effects of a major cyber attack in the future.
 
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The inability to operate our telecommunications networks and systems or those of our suppliers, vendors and other service providers as a result of cyber attacks, even for a limited period of time, may result in significant expenses to us, and a loss of market share to other telecommunications operators. The potential costs associated with these attacks could exceed the insurance coverage we maintain. In addition, if we fail to prevent the theft of valuable information such as financial data, sensitive information about our intellectual property, or if we fail to protect the privacy of customer and employee confidential data against cyber attacks or any other types of data security breaches, it could result in lawsuits, government claims, investigations or proceedings, and damage to our reputation, which could adversely impact customer and investor confidence. Any of these occurrences could result in a material adverse effect on our results of operations and financial condition.
Our continued investments in the construction of our infrastructure network may not adequately address the issues resulting from the substantial increases in data traffic or otherwise achieve the desired outcomes.
Our wireless data traffic business has experienced continuous growth in recent years. The continued substantial increase in data traffic significantly strains the existing capacity of our telecommunications network infrastructure, which we expect to make continuous investments to improve. Moreover, our increased efforts to facilitate the commercialization of 5G technologies and services require investment in the construction of relevant network infrastructure. As a result, we made, and will continue to make, substantial investments in the construction of our network infrastructure to carry the increasing data traffic in the new generation of technology. Accordingly, the amount of our capital expenditures in future years could remain high. We incurred capital expenditures of RMB183.6 billion in 2021, which was spent primarily to continued
build-out
and enhancement of our 5G network, the construction of cloud-based infrastructure, support for the
all-rounded
development of the “four growth engines,” and enhancement of smart operations. We expect to incur capital expenditures of approximately RMB185.2 billion in 2022. Capital expenditure in 2022 will serve a variety of purposes, including building our premium 5G network, our integrated computing force network and industry-leading smart
mid-end
platform, and support for the
all-rounded
development of CHBN business. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Material Cash Requirements” for more information on our expected capital expenditures. We cannot assure you that these investments would successfully address the issues resulting from the substantial increases in data traffic or otherwise achieve the desired outcomes.
We may suffer damage to our reputation and financial losses due to communications fraud carried out on our network.
Communications fraud in the mainland of China poses a risk to our business. As we provide connections to the network and host websites for customers and develop Internet content and applications, we may be perceived as being associated with the content distributed through our network or displayed on websites that we host. If communications fraud is committed over our network, we may incur liability as a result of the inadequacy in our measures to prevent such fraud under relevant PRC laws and regulations, including but not limited to the Notice on Advancing Key Tasks in Preventing Telecommunications Fraud in 2019 issued by the MIIT on May 9, 2019, the Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues concerning the Application of Law in Handling Criminal Cases Involving Crimes of Illegally Using an Information Network or Providing Aid for Criminal Activities in Relation to Information Network released on October 21, 2019, the Notice of the Ministry of Industry and Information Technology on Strengthening the Management of Call Center Business issued by the MIIT on June 8, 2020, and Notice of the Ministry of Industry and Information Technology on Carrying out Actions to Improve the Perception of Information and Communication Services issued by the MIIT on November 1, 2021. We have carried out various technical and administrative measures to control and prevent such fraud. For example, we have implemented the real-name registration system for our customers in accordance with the requirements of government authorities, developed a number of anti-fraud systems to detect and intercept fraud calls, spam SMS and smartphone malware, refined our customer service to facilitate the instant reporting of fraud, and strengthened the protection of customers’ personal data from unauthorized access and leakage. See “Item 4. Information on the Company—Business Overview—Sales and Customer Services—Service Quality.” However, we cannot and do not screen all of the information distributed through our network or websites. There is no assurance that our measures to prevent or detect fraud will work effectively. Litigations arising from the claims of communications fraud have been brought against other providers of online services in the past. Regardless of the merits of the litigations, they can be costly to defend, divert management resources and attention, which could in turn damage our reputation and have an adverse effect on our business and results of operations.
 
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Our business may be materially and adversely affected by the
COVID-19
outbreak or future epidemics or pandemics.
COVID-19,
a disease caused by a novel strain of coronavirus, has spread globally since the beginning of 2020, and the World Health Organization declared the outbreak of
COVID-19
a pandemic on March 13, 2020.
COVID-19
pandemic has caused significant economic and financial disruptions around the world. The duration and intensity of the disruptions resulting from
COVID-19
outbreak, the extent and severity of new waves of outbreak, the progress of distribution of
COVID-19
vaccine and the development of other medical treatment remain uncertain. At this time, it is not possible to estimate how long it will take to halt the spread of the virus or the longer-term effects that
COVID-19
pandemic could have on our business. We are continuing to monitor the spread of
COVID-19
and related risks.
Due to the outbreak of
COVID-19,
the PRC government implemented a number of control measures. The
COVID-19
pandemic has significantly disrupted China’s economy in the first quarter of 2020. Although China’s economy has experienced recovery since then, it may continue to face challenges due to the spread of the pandemic, risks associated with further local outbreaks and imported cases and heightened volatility and uncertainties in the global economy.
The global impact of
COVID-19
pandemic has been rapidly evolving and, as the pandemic has spread globally, many countries have instituted quarantines, restrictions on travel, “social distancing” rules, restrictions on “nonessential” business, and/or halt on construction projects. The outbreak of
COVID-19
pandemic has severely impacted global economic activities and caused significant volatility and negative pressure in the financial markets.
The
COVID-19
outbreak and other public health crisis or actions taken to mitigate such crisis could materially and adversely affect our business, financial condition and results of operations. The adverse impacts may include declining demand for our products and services, increased costs incurred to maintain networks and ensure service continuity and staff safety, temporary closures of certain sales outlets, disruptions or restrictions on the delivery of services or supplies, and other limitations on our business activities.
We may also experience negative effects from future public health crises beyond our control. These events are impossible to forecast, their negative effects may be difficult to mitigate and they could adversely affect our business, financial condition and results of operations. See “—Risks Relating to the mainland of China—An economic slowdown in the mainland of China may reduce the demand for our services and have a material adverse effect on our business, financial condition, results of operations and prospects.”
We face risks relating to our acquisitions, investments and specialized subsidiaries.
We made acquisitions of and hold investments in other entities, with some of which we also established contractual arrangements such as the strategic cooperation. Such investments and acquisitions include our equity interest in Shanghai Pudong Development Bank, or SPD Bank, China Tower, IFLYTEK CO., LTD., or IFLYTEK, True Corporation Public Company Limited, or True Corporation, China Mobile Innovative Business Fund (Shenzhen) Partnership (Limited Partnership), or China Mobile Fund, Beijing Channelsoft Technology Co., Ltd., or ChannelSoft, Xiaomi Corporation, or Xiaomi, Beijing Haitian Ruisheng Science Technology Co., Ltd., Beijing Kingsoft Office Software, Inc., or Kingsoft office, Fujian Heyi Health Technology Development Co., Ltd., AsiaInfo Technologies Limited, Huaqin Technology Co., Ltd., Zhengshu Network Technology Co., Ltd., Haida Insurance Brokerage Co., Limited, Zhejiang
New-type
Internet Exchange Point Co., Ltd., Beijing Haiyu Dongxiang Technology Co., Ltd., Shenzhen Qianhai
New-type
Internet Exchange Point Co., Ltd., Ningxia Zhongwei New Internet Exchange Center Co., Ltd., Harbin Energy Innovate Science & Technology Co., Ltd., Huanyu Trust (Beijing) Technology Co., Ltd., Zhongji Innolight Co., Ltd., Nanjing Chuangxin Huilian Technology Co., Ltd., Xintong Digital Intelligence Quantum Technology Co., Ltd., and our acquisitions of business and assets of China Tietong Telecommunications Corporation, or China Tietong. See “Item 4. Information on the Company—Business Overview—Investments and Acquisitions.” In the future, we may pursue additional acquisitions or otherwise make new investments in other business areas as such opportunities arise.
 
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Furthermore, we have established certain subsidiaries to carry out specialized operations, such as China Mobile Financial Technology Company Limited, or China Mobile FinTech, China Mobile Group Device Company Limited, or China Mobile Device, China Mobile International Limited, or China Mobile International, China Mobile IoT Company Limited, China Mobile Online Services Co., Ltd., China Mobile (Suzhou) Software Technology Co., Ltd., China Mobile (Hangzhou) Information Technology Company Limited, MIGU Co., Ltd., or MIGU, China Mobile Internet Company Limited, China Mobile Investment Holdings Co., Ltd., or CMI Holdings, and China Mobile Group Finance Co., Ltd., or China Mobile Finance. We expect to further enhance our operational efficiency by establishing other subsidiaries that operate certain other aspects of our businesses in accordance with our business development strategies.
We cannot assure you that our abovementioned investments will achieve the desired level of return, or that any strategic cooperation and integration will produce the expected benefits, if at all. The profitability of entities held by us is impacted to some extent by macroeconomic conditions and changes in monetary and fiscal policies in the countries and regions in which they operate. Moreover, if we encounter difficulties in carrying out our cooperation with our strategic cooperation partners or the integration with the target companies we acquired, the prospects of relevant business operations may be materially and adversely affected. In addition, we cannot assure you that the business model of each of the entities we held would be sustainable, and the expected benefits from our investment in networks, licenses and new technologies may not be realized.
Any failure to achieve and maintain effective internal controls could have a material adverse effect on our reputation, business and results of operations.
Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to prevent fraud. We are required to comply with various Hong Kong and U.S. laws, rules and regulations on internal controls, including the Sarbanes-Oxley Act of 2002. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual reports on Form
20-F
that contains an assessment by our management of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must issue an auditor’s report on the effectiveness of our internal control over financial reporting.
Internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. In addition, projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in operating conditions or a deterioration in the degree of compliance with our policies or procedures. As a result, even effective internal controls are able to provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal control over financial reporting, our management may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting. Moreover, even if our management concludes that our internal control over financial reporting is effective, 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 designed or operated, or if the independent registered public accounting firm interprets the requirements, rules or regulations differently from us, it may decline to express an opinion on the effectiveness of our internal control over financial reporting or may issue an adverse opinion. Any of these possible outcomes could result in a loss of investor confidence in the reliability of our consolidated financial statements. In addition, any deficiency in our internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to regulatory investigations and civil or criminal sanctions.
Some employee misconduct, including misconduct by senior management, may not be detected or prevented in a timely manner, and such misconduct may damage our reputation.
Certain management personnel of certain subsidiaries of our Company were alleged to have engaged in unlawful conduct in recent periods. Such allegations of unlawful conduct include the acceptance of bribes. While some of these incidents are still under investigation, we believe that such management misconduct are isolated incidents resulting from individual misconduct.
 
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In order to further strengthen our internal system and policies for detecting and preventing similar and other misconduct, we have
re-examined
our policies and procedures and have implemented additional operational measures. In particular, with respect to our business cooperation arrangements with third parties, we have adjusted the model of business cooperation and have implemented more stringent policies and processes. These efforts are expected to reduce the probability of third parties engaging in improper business relationships with our employees. We have also further expanded the type of equipment, products and services that are subject to centralized procurement. Furthermore, we have implemented a rotation policy under which the management of our major operating subsidiaries will rotate among different subsidiaries every few years. In addition, we have revised our policy in relation to, and strengthened control over, the material investment projects. We have also provided ongoing compliance and ethics trainings to our employees.
As described above, we have taken various measures to prevent employee misconduct. We cannot assure you, however, that all misconducts or allegations of misconduct by our management and staff can be detected or prevented in a timely manner. If various measures we have taken prove ineffective in preventing employee misconduct, our reputation may be severely harmed.
Our success depends on the continued services of our senior management team and other qualified employees.
Our continued success and growth depends on our ability to identify, hire, train and retain suitably skilled and qualified employees, including management personnel, with relevant professional skills. The services of our directors and members of senior management are essential to our success and future growth. The loss of a significant number of our directors and senior management could have a material adverse effect on our business if we are unable to find suitable replacements in a timely manner. We also face fierce competitions with other telecommunication operators and technology companies in hiring and retaining qualified employees or other talents with skills tailored to our development. Therefore, we cannot assure you that we will always be able to attract and retain our desired personnel, and any failure to recruit and retain the necessary management personnel and other key personnel for our operations could have a material adverse impact on our business and results of operations.
We are controlled by CMCC, which may not always act in our best interest.
As of March 31, 2022, CMCC, directly or indirectly, owned approximately 69.82% of our outstanding shares. Accordingly, CMCC is, and will be, able to (i) nominate substantially all of the members of our board of directors and, in turn, indirectly influence the selection of our senior management; (ii) control the timing and amount of our dividend payments; and (iii) otherwise control or influence actions that require approvals of our shareholders.
The interests of CMCC as our ultimate controlling person may conflict with the interests of our minority shareholders. In particular, CMCC may take actions with respect to our business that may not be in our other shareholders’ best interest.
In addition, CMCC provides our operating subsidiaries in the mainland of China with services that are necessary for our business activities. See “Item 5. Operating and Financial Review and Prospects—Overview of Our Operations—Our Operating Arrangements with CMCC Have Affected and May Continue to Affect Our Financial Results.” Furthermore, we operate our 3G, 4G and 5G businesses pursuant to arrangements with CMCC, which was granted licenses by the PRC government to operate a 3G business based on
TD-SCDMA
technology, a 4G business based on
TD-LTE
technology and LTE FDD technology and a 5G business based on allocated frequency bands. The interests of CMCC as the provider of these services to our operating subsidiaries in the mainland of China may conflict with the interests of us or our other shareholders.
Our future network capacity growth may be constrained by the frequency spectrum available to us.
Mobile network capacity is to a certain extent limited by the amount of frequency spectrum available for its use. Since the MIIT controls the allocation of frequency spectrum to mobile operators in the mainland of China, the capacity of our mobile network is limited by the amount of spectrum that the MIIT allocates to our parent company, CMCC. For our Global System for Mobile Communications, or GSM, network, the MIIT has allocated to CMCC a total of 40x2 MHz of spectrum in the 900 MHz and 1800 MHz frequency bands to be used nationwide for transmission and reception. In connection with our 3G business, the MIIT has allocated to CMCC, in various frequency bands, a total of 30 MHz of spectrum to be used for nationwide coverage. In connection with our 4G business, CMCC has been approved by the MIIT to provide 4G services on frequency bands initially allocated to 2G and 3G services until December 31, 2023. We cannot assure you that we will be able to get more spectrum or maintain the existing spectrum upon the expiry of such approval.
In addition, the refarming process could lead to discontinuation in certain services and affect customer experience, which may adversely affect our business and reputation. Under the existing agreement between CMCC and us, we have the right to use the allocated frequency spectrum in the mainland of China. Additionally, the frequency bands that we are permitted to use for 5G services may also constrain the development of our 5G network. See “—We may encounter difficulties and challenges in the commercialization of 5G technologies.” Furthermore, part of the frequencies initially allocated to our 4G services are expected to be reallocated to our 5G services and we cannot assure you that our existing 4G services will not be negatively interfered during such process.
 
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We believe that our current spectrum allocation is sufficient for anticipated customer growth in the near term. However, we may need additional spectrum to accommodate future customer growth or to further develop our 4G and 5G services, and the quality of spectrum available to us may affect our competitive position. We cannot assure you that we will be able to obtain additional spectrum from the MIIT that would meet our expectations or business needs on a timely basis. Our network expansion or upgrade plans may be affected if we are unable to obtain additional spectrum. This could in turn constrain our future network capacity growth and our market share, which would in turn materially and adversely affect our business and prospects as well as our financial condition and results of operations.
We rely on our relationship with China Tower and there remains uncertainty in that relationship which could in turn materially, adversely affect our operations.
China Tower was established in July 2014 by China Mobile Communication Co., Ltd., or CMC, our wholly-owned subsidiary, China Telecom and CUCL, a wholly-owned subsidiary of China Unicom and as of March 31, 2022, we indirectly owned approximately 28% equity interest in China Tower through CMC. The purpose of establishing China Tower is to reduce the overall capital expenditures and operational costs and redundant projects of the three major telecommunications operators and to improve network coverage of the operators. We believe that participating in the establishment of China Tower will benefit our operation and business development in the following significant aspects: (i) to enhance our telecommunications network coverage ability, (ii) to save capital expenditures and optimize cash management, and (iii) to realize investment return from the equity investment in the long run. In order to achieve such purpose, on October 14, 2015, CMC entered into a transaction agreement on transfer of its then-owned telecommunications towers and related assets to China Tower. CMC entered into the Commercial Pricing Agreement, or the Lease Agreement on July 8, 2016 and a supplemental agreement on January 31, 2018 to lease from China Tower telecommunications towers and related assets. See “Item 4. Information on the Company—The History and Development of the Company—Industry Restructuring and Changes in Our Shareholding Structure” and “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Telecommunications Towers and Related Assets Lease Arrangement.”
Our cooperation with China Tower has been benefiting us since its establishment and is expected to continue to run smoothly. However, as we do not own a majority interest of, or otherwise control, China Tower, China Tower may not always act in the best interests of us, and there are uncertainties as to whether the services of China Tower can sufficiently support our business needs and plans, particularly our plan to expand our 4G and 5G business, and whether China Tower can fulfill any usage arrangements to be agreed with us and properly operate, maintain and manage its assets. Additionally, since it is expected that none of us, China Telecom or China Unicom will construct any telecommunications tower after the establishment of China Tower, our business will rely on these telecommunications towers usage arrangements with China Tower. We cannot assure you that we are able to use telecommunications towers and related assets on terms and conditions we desire. In particular, the Lease Agreement provides for a pricing adjustment mechanism under which the fees may be further negotiated or agreed upon after considering any effects of inflation, significant fluctuations in the real estate market or the steel price, many of which are beyond our control. Furthermore, prior to the expiration of lease periods of individual towers, we have to negotiate with China Tower new leases of such towers. If we are unable to enter into any new leases or if we are able to enter into new leases but the lease terms are less favorable to us, our business operations, financial condition and results of operations may be materially and adversely affected. Moreover, establishment of China Tower may enable our competitors to expand their 4G and 5G networks and businesses at a faster pace, which may, in turn, reduce our competitiveness and market share. Failure of China Tower to fulfill any usage arrangements with us or properly operate, maintain and manage its telecommunications tower assets or to provide stable services to us could adversely affect the quality and uninterrupted services of our networks, which would in turn materially and adversely affect our business operations, financial condition, and results of operations.
 
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We rely on our relationship with China Broadcasting to develop and use 5G network.
In May 2020, we announced that CMCC, our parent company, entered into a collaborative framework agreement in relation to 5G
co-construction
and sharing with China Broadcasting. Pursuant to this collaborative framework agreement, CMC, our wholly-owned subsidiary, on behalf of its 31 provincial subsidiaries, entered into four specific collaboration agreements with China Broadcasting on January 26, 2021. Further, in September 2021, CMC, on behalf of CMCC and 31 provincial subsidiaries, entered into a supplemental agreement with China Broadcasting in relation to
co-construction
and sharing of 5G wireless network with a frequency of 700MHz. Please see “Item 4. Information on the Company—Business Overview—5G
Co-construction
and Sharing Agreements” for further information.
We believe that, through such cooperation with China Broadcasting, parties can leverage their advantages in areas such as 5G technologies and spectrum resources to intensively and efficiently achieve 5G network coverage. However, there is no guarantee that we will be able to fully achieve the intended benefit of such cooperation. If our cooperation with China Broadcasting is terminated or the implementation of such cooperation is not as agreed under the relevant collaboration agreements, we may not be able to construct 5G network infrastructure as currently planned and achieve network coverage as planned or as efficiently, which could materially and adversely affect our business operations, financial condition, and results of operations.
We are subject to reviews and inspections by governmental authorities and regulatory agencies.
We are subject to reviews and inspections by various governmental authorities and regulatory agencies. These reviews and inspections could cover a broad range of aspects in relation to our business and operations, including financial reporting, tax reporting, internal control and compliance with applicable laws, rules and regulations. For example, in 2017, the National Audit Office of the PRC, or the NAO, conducted an audit (the “Audit”) mainly on the financial revenue and expenditures for the year 2016 of CMCC, our parent company, and its subsidiaries. The Audit found that there were still some issues with CMCC requiring further improvement in areas such as its financial management and accounting as well as operations management, including certain isolated items involving several subsidiaries of us. While issues identified in the Audit have no material impact on the overall operating results, financial reports and effectiveness of internal controls of CMCC or its subsidiaries, we cannot predict the impact of any findings of other reviews, inspections and investigations to be carried out by the NAO or other governmental authorities and regulatory agencies in the future, and we cannot assure you that the outcome of any such reviews or inspections would not have a material adverse effect on our business, financial condition, results of operations, prospects and reputation.
We have been subject to an
on-going
investigation by the State Administration for Market Regulation over alleged violation of the PRC Anti-Monopoly Law and we currently cannot predict whether or when the SAMR will issue its decision.
The State Administration for Market Regulation, or SAMR, which is the anti-monopoly regulatory authority in the PRC, has been conducting an investigation (the “Investigation”) on four of our provincial subsidiaries over alleged violation of the PRC Anti-Monopoly Law in their sales activities involving customized 4G+ handsets. The Investigation concerns those sales activities, which are alleged to have restricted competition, involving paying subsidies to our distributors and setting sales performance targets on our handset manufacturers for purposes of increasing the sales of our specially customized 4G+ handsets, which activities were already suspended. The SAMR is responsible for the enforcement of the PRC Anti-Monopoly Law and relevant regulations, including promulgating related regulatory policies and guidelines, reviewing monopoly agreements, investigating into abuse of dominant market position and examining concentration of enterprises. It also has the power to issue orders and fines and confiscate gains deemed illegal or take other regulatory actions against wrongdoings. See “ Item 4. Information on the Company—Business Overview—Regulation—Market Regulation.” We have been cooperating with the SAMR during the Investigation and responding to SAMR’s formal requests for information and documents in a timely manner. Since the publication of our 2018 annual report on April 29, 2019, we have not been requested by the SAMR to provide any further information or documents or take any other actions and as of the date of this report, the SAMR has not made any decision or reached any conclusion of the Investigation. We currently cannot predict when the SAMR will issue its decision or assure you that such decision would be in favor of us. Any SAMR’s findings of wrongdoings by us including any of our subsidiaries or any judicial decisions against us could damage our reputation, and any fines or monetary damages that we might be required to pay could negatively affect our results of operations and financial condition.
 
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Since our services require interconnection with networks of other operators, disruption in interconnections with those networks could have a material adverse effect on our business, profitability and growth.
Our telecommunications and related services depend, in large part, upon our interconnection arrangements and access to other networks. Interconnection is necessary in the case of all calls between our customers and customers of other networks. We have entered into interconnection and transmission line leasing agreements with other operators. Any disruption in our interconnection with the networks of other operators with which we interconnect due to technical or competitive reasons may affect our operations, service quality and customer satisfaction, and in turn our business and results of operations. In addition, any obstacles in existing interconnection arrangements and leased line agreements or any change in 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 could severely harm our operations and materially decrease our profitability and growth.
Compliance with the SEC’s rule for disclosures on “conflict minerals” may be time-consuming and costly and could adversely affect our reputation.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted a rule that applies to companies that use certain minerals and metals, known as conflict minerals, in their products, including certain products manufactured for them by third parties. The rule will require companies that use conflict minerals in the production of their products to conduct due diligence as to whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries and to file certain information with the SEC about the use of these minerals. We filed our conflict minerals report for the years ended December 31, 2014, 2015, 2016, 2017, 2018, 2019 and 2020 with the SEC, and our conflict minerals report for the year ended December 31, 2021 is due May 31, 2022. We will incur additional costs to comply with the due diligence and disclosure requirements. In addition, depending upon our findings, or our inability to make reliable findings, about the source of any possible conflict minerals that may be used in any products manufactured for us by third parties, our reputation could be harmed, and there may also be disruptions to our business and strategy.
We enjoy certain preferential tax policies in the mainland of China; any adverse change of such tax policies in the future may have an adverse effect on our cash flows and results of operations.
According to the Announcement of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs on Deepening the Value-added Tax Reform Policy (Announcement No. 39 of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs in 2019), from April 1, 2019 to December 31, 2021, taxpayers in the producer and consumer services sectors in the mainland of China, including us, are allowed to deduct tax payable by adding 10% to the current deductible input tax. Such preferential tax treatment has been extended to December 31, 2022, according to the Announcement of the Ministry of Finance and the State Administration of Taxation on the Value-added Tax Policy for the Bailout and Development of Difficult Industries in the Service Sector (Announcement No. 11 of the Ministry of Finance and the State Administration of Taxation in 2022).
Applicable preferential tax policies including the above have had a positive effect on our profitability. Any adverse change of such tax policies in the future may have an adverse effect on our cash flows and results of operations.
Risks Relating to the Telecommunications Industry in the mainland of China
We are subject to extensive government regulation and any change in the regulatory environment in the PRC, especially with respect to the telecommunications industry, may materially impact us.
As a telecommunications operator in China, we are subject to regulation by, and under the supervision of, the MIIT, the primary regulator of the telecommunications industry in China. Other PRC government authorities also take part in regulating the telecommunications industry in areas such as tariff policies and foreign investment. The regulatory framework within which we operate may limit our flexibility to respond to changes in market conditions or competition and could negatively affect our cost structure, profit margin and market share. For example, in recent years, PRC government authorities have required the implementation of real name registration for mobile users. Furthermore, since 2015, the PRC government announced a number of policies on network speed upgrade and tariff reduction, and we introduced, and will continue to introduce, corresponding measures. See “Item 4. Information on the Company—Business Overview—Tariffs.” The PRC government may announce additional tariff reduction policies in the future, and we cannot predict to what extent we may be required to further reduce tariffs. Future changes in tariff policies could significantly decrease our revenues and materially reduce our profitability. See “—Risks Relating to Our Business—Our tariff reduction and future policy developments in the telecommunications industry in relation to tariff reduction may continue to adversely affect our financial conditions.” Additionally, following pilot mobile number portability programs in Tianjin, Hubei, Jiangxi, Yunnan and Hainan, the PRC government announced in March 2019 a directive to implement mobile number portability programs in the mainland of China by the end of 2019. In November 2019, the PRC government announced the official implementation of such programs nationwide. As a result, the competition among telecommunication operators may further intensify. In response, we may offer more tariff promotions to attract and retain customers. As a result of such intensified competition, our results of operations, profitability and market share may suffer. Any change in the regulatory environment in the PRC, especially with respect to the telecommunications industry, may have a material adverse effect on our business, financial condition, results of operations and prospects.
 
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The MIIT, under the direction of the State Council, has been preparing a draft telecommunications law, which, once adopted, will become the fundamental telecommunications statute and the legal basis for telecommunications regulations in the mainland of China. In 2000, the State Council promulgated a set of telecommunications regulations, or the Telecommunications Regulations. Although we expect that the telecommunications law will positively affect the overall development of the telecommunications industry in the mainland of China, we do not fully know what will be its nature and scope. The telecommunications law and other new telecommunications regulations or rules may contain provisions that could have a material adverse effect on our business, financial condition, results of operations and prospects.
We operate our businesses with approvals granted by the State Council and under licenses granted by the MIIT. We also have arrangements with CMCC, our parent company, under which we operate 3G, 4G and 5G telecommunications businesses based on the 3G, 4G and 5G licenses granted by the MIIT. Any future adverse change in the conditions or other obligations relating to these approvals and licenses could have a material adverse effect on our business, financial condition, results of operations and prospects.
Furthermore, personal privacy, cyber security, and data protection are becoming increasingly significant issues in China. The regulatory framework governing the collection, processing, storage and use of business information and personal data is rapidly evolving. The Cyber Security Law of the PRC, or the Cyber Security Law, which came into effect on June 1, 2017, sets forth an overarching framework regulating the network products, equipment, and services, as well as the operation and maintenance of information networks, the protection of personal information, and the supervision and administration of cyber security in the mainland of China. See “Item 4. Information on the Company—Business Overview—Regulation—Cyber Security and Personal Privacy Protection.” These requirements could increase our costs of compliance. In furtherance of the Cyber Security Law, the PRC government published “Cybersecurity Review Measures” on April 13, 2020. The Cybersecurity Review Measures provides for the scope and procedures of cybersecurity review and its latest amendment came into effect on February 15, 2022. In addition, the PRC government also published “Guiding Opinions on Implementation the Multi-Level Protection System for Network Security and Critical Information Infrastructure Security Protection System” in September 2020, requiring critical information infrastructure operators to carry out security construction and evaluation in accordance with multi-level network security protection standards, and “Security Protection Regulations on the Critical Information Infrastructure” in July 2021, providing guidance on the compliance obligations and penalties imposed on the critical information infrastructure operators. The Data Security Law of the PRC, which came into effect on September 1, 2021, requires entities and individuals carrying out data activities in China to establish and improve their data security systems and implement necessary technologies and measures to safeguard data security. It also sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations. The Personal Information Protection Law of the PRC, which came into effect on November 1, 2021, includes the basic rules for personal information processing, rules for cross-border provision of personal information, obligations of personal information processors, and legal responsibilities for illegal collection, processing and use of personal information. Although we have taken and will continue to take measures to comply with those laws and regulations, we cannot assure you that we will comply with the regulatory requirements in all aspects at all times. Any inability to comply with the relevant laws, regulations and policies could result in additional cost and liability to us, damage our reputation, and adversely affect our business. Moreover, increased costs to comply with and other burdens imposed by the relevant laws, regulations and policies that are applicable to the businesses of our suppliers, vendors and other service providers, as well as our customers, may inhibit our business development or curb the demand of our products and services. If we are unable to respond to changing laws, regulations, policies and guidelines related to privacy or cyber security, our business, financial condition, results of operations and prospects may be materially and adversely affected.
 
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In addition, any PRC telecommunications operators operating in foreign jurisdictions are subject to licensing and other regulatory requirements and supervision of various local government agencies in the relevant jurisdictions. For example, on April 4, 2020, the President of the United States issued an executive order for the establishment of a committee to review foreign participation in the telecommunications services sector in the United States.
The PRC government may require major operators, including us, to provide universal services with specified obligations, and we may not be compensated adequately for providing these services.
Under the Telecommunications Regulations, telecommunications operators in the mainland of China are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government, and the MIIT has the authority to delineate the scope of these service obligations. In December 2015, the MOF and the MIIT jointly issued a notice on the pilot program to promote basic universal telecommunications services in rural areas where telecommunications operators in the mainland of China, including us, are encouraged to support the broadband development in rural and remote areas, so as to facilitate the achievement of certain strategic goals relating to “Broadband China.” This includes achieving, by 2020, the goal of broadband access in 98% of the villages by administrative division and the rural broadband access capacity of more than 12Mbps. As of December 31, 2021, we had provided broadband access to around 59,600 villages by administrative division under the universal service program. We cannot predict whether we will be required to provide other universal services in the future and, if so, whether we will be adequately compensated by the government or by the universal service fund. We also cannot assure you whether we will be required to make contribution to the universal service fund. Any of these events could reduce our revenues and/or profitability.
Actual or perceived health risks associated with the use of mobile devices could materially impair our ability to retain and attract customers, reduce wireless telecommunications usage or result in litigation.
There continues to be public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and from the use of mobile devices. While a substantial amount of scientific research conducted to date by various independent research bodies has shown that radio signals, at levels within the limits prescribed by public health authority safety standards and recommendations, present no adverse effect to human health, we cannot be certain that future studies, irrespective of their relative reliability or trustworthiness, will not impute a link between electromagnetic fields and adverse health effects. Research into these issues is ongoing by government agencies, international health organizations and other scientific bodies in order to develop a better scientific understanding and public awareness of these issues. In addition, several wireless industry participants were the targets of lawsuits alleging various health consequences as a result of wireless phone usage or seeking protective measures. While we are not aware of any scientific studies or objective evidence which substantiates such alleged health risks, we cannot assure you that the actual, or perceived, risks associated with radio wave transmission will not materially impair our ability to retain customers and attract new customers, significantly reduce wireless telecommunications usage or result in litigation.
Risks Relating to the mainland of China
An economic slowdown in the mainland of China may reduce the demand for our services and have a material adverse effect on our business, financial condition, results of operations and prospects
.
We conduct most of our business and generate substantially all of our revenues in the mainland of China. As a result, economic, political and legal developments in the mainland of China have a significant effect on our financial condition and results of operations, as well as our future prospects. While the mainland of China has been one of the world’s fastest growing economies in recent years, with its real gross domestic product, or GDP, growth rate being 8.1% in 2021, it is still facing domestic and international challenges from time to time, and its GDP growth rate may decline in the future. For example, the
COVID-19
pandemic could cause a global recession and a significant slowdown in the economic development in many countries including China and even long-term economic depression. The global economy may continue to deteriorate in the future and as China is increasingly connected with the rest of the world, any slowdown or decline of global economy could adversely impact China’s economy in various respects, including reduced exports, decreased consumer spending, higher unemployment levels, lower business confidence and continued volatility of financial markets. Additionally, despite the phase one trade deal reached between China and the United States amid the trade disputes between the two countries, there is no assurance that the trade disputes between China and the United States will be fully resolved in the near future or new trade frictions between China and other countries will not emerge in the future, which could in turn harm China’s economic growth. A deterioration in the business environment of the mainland of China as a result of the slowdown in economic growth could reduce business activities and demand for our services and products, which could materially and adversely affect our business, financial condition and results of operations.
 
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Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.
We receive substantially all of our revenues, and our financial statements are presented, in Renminbi. The value of the Renminbi against U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC and international economic conditions and foreign exchange policies. Furthermore, the Renminbi currently is not a freely convertible currency. Under the “capital account,” which includes, among others, foreign direct investment, the prior approval of the State Administration of Foreign Exchange should be obtained prior to conversion of Renminbi into foreign currency. On the other hand, under the “current account,” which includes trade, payment of dividends and service-related foreign currency transactions, the Renminbi is currently freely convertible. The ability of our operating subsidiaries in the mainland of China to satisfy their foreign exchange obligations, pay dividends to us, and obtain foreign exchange through equity financing, including by means of capital contributions from us, depends on the foregoing foreign exchange control regulations in the mainland of China.
The conversion of Renminbi into foreign currencies, including U.S. dollars and Hong Kong dollars, is based on rates set by the People’s Bank of China, or PBOC. The PRC government allowed the Renminbi to appreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. In August 2015, PBOC announced that the
mid-point
exchange rate for the floating range of Renminbi against the U.S. dollar will be determined based on market maker submissions that take into account the Renminbi-U.S. dollar exchange rate at the previous day’s closing of the inter-bank spot foreign exchange market, the supply and demand dynamics and the movements of other major currencies. Since October 1, 2016, the Renminbi has joined the International Monetary Fund’s basket of currencies that make up the Special Drawing Right, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and there is no guarantee that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
Fluctuations in exchange rates may adversely affect the value, translated or converted into U.S. dollars or Hong Kong dollars, of our net assets, earnings and any declared dividends payable on our ordinary shares in foreign currency terms. Our financial condition and results of operations may also be affected by changes in the value of certain currencies other than the Renminbi, in which certain of our cash and cash equivalents and bank deposits are denominated. If we incur, in the future, debt denominated in currencies other than the Renminbi, such as in the U.S. dollar, the fluctuation of the Renminbi against the other currencies could adversely affect our financial condition and results of operations. For further information on our foreign exchange risks and certain exchange rates, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.” We cannot assure you that any future movements in the exchange rate of the Renminbi against the U.S. dollar or other foreign currencies will not adversely affect our results of operations and financial condition.
The PRC legal system contains uncertainties which could limit the legal protections available to our shareholders and us.
Most of our operating subsidiaries are organized under the laws of the PRC and are subject to laws, rules and regulations in the PRC. The PRC 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. The PRC government has promulgated laws, rules and regulations dealing with economic matters, such as corporate organization and governance, commerce, property, taxation, trade and foreign investment. However, because some of these laws, rules and regulations remain relatively untested, and because of the relatively limited volume of published cases and their
non-binding
nature, interpretation and/or enforcement of these laws, rules and regulations involve potentially significant uncertainties, which may limit the remedies available to our investors and to us in the event of any claims or disputes with third parties. In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management attention. Consequently, the protection provided by the PRC legal system may not be the same as the legal protection available to investors in the United States or elsewhere. Furthermore, various uncertainties involved in the rulemaking, interpretation and enforcement process of the laws, rules and regulations in the PRC that are related to our business and operations may also materially and adversely affect our financial condition, results of operations and prospects.
 
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Natural disasters, terrorist acts, acts of war and health hazards in China may cause damage to our infrastructure and severely disrupt our business and operations.
Our business operations are subject to interruption by natural disasters, power outages, terrorist attacks or other hostile acts, health hazards, among others, which are beyond our control. Such events could cause significant damage to our infrastructure upon which our business operations rely, resulting in degradation or disruption of service to our customers. For example, several natural disasters have struck the mainland of China in recent years. Our network equipment, including our base stations, in the affected areas sustained extensive damages in some of these natural disasters, leading to service stoppage and other disruptions in our operations in those areas. We are unable to predict the effect, if any, that any future natural disasters or other similar events may have on our business. While we maintain insurance coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain. Our system redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities. These events could also damage the infrastructure of the suppliers, vendors and service providers that provide us with the equipment and services we need to operate our business and provide products to our customers. Any future natural disasters or other similar events may, among other things, significantly disrupt our ability to adequately staff our business, and may generally disrupt our operations. Furthermore, such natural disasters and other similar events may severely restrict the level of economic activity in affected areas, which may in turn materially and adversely affect our business and prospects. As a result, any natural disasters or other similar events in China may have a material adverse effect on our financial condition and results of operations.
You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management, and the ability of U.S. authorities to bring actions in the mainland of China may also be limited.
Substantially all of our assets and our subsidiaries are located in the mainland of China. In addition, most of our directors and officers reside within the mainland of China, and substantially all of the assets of our directors and officers are located within the mainland of China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside the mainland of China upon most of our directors or officers, including with respect to matters arising under applicable laws and regulations. Moreover, the mainland of China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom or most other Western countries, and Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States.
As a result, recognition and enforcement in the mainland of China or Hong Kong of judgments of a court in the United States and any of the other jurisdictions mentioned above in relation to any matter not subject to a binding arbitration provision may be difficult or impossible. Even if you sue successfully in a U.S. court or any of the other jurisdictions mentioned above, you may not be able to collect on such judgment against us or our directors and officers. In addition, the SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or officers in the mainland of China.
Our investors may be deprived of the benefits of PCAOB’s oversight of our independent registered public accounting firm through inspections.
Under the Sarbanes-Oxley Act of 2002, the Public Company Accounting Oversight Board, or PCAOB, has the authority and is required to conduct continuing inspections of registered public accounting firms that provide audit services to public companies subject to the reporting requirements of the SEC. Our external auditor is registered with the PCAOB and is subject to inspections by the PCAOB.
 
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As part of continued regulatory focus in the United States on access to audit and other information currently protected by foreign law, in particular the PRC’s law, on December 18, 2020, the United States enacted the Holding Foreign Companies Accountable Act, or the HFCA Act. The HFCA Act includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a
non-U.S.
authority in the auditor’s local jurisdiction. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to determine, as contemplated under the HFCA Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. Final rules implementing certain requirements of the HFCA Act were adopted by the SEC on December 2, 2021 and generally become effective on January 10, 2022. On December 16, 2021, the PCAOB issued the HFCAA Determination Report, according to which our auditor is subject to the determination that the PCAOB is unable to inspect or investigate it completely since it is headquartered in the mainland of China.
As a result of the inability of the PCAOB to conduct inspections of auditors in China, our investors may be deprived of the benefits of PCAOB’s oversight of our independent registered public accounting firm through such inspections, which may make it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, and could cause our investors and potential investors to lose confidence in our audit procedures, reported financial information and the quality of our financial statements.
 
Item 4.
Information on the Company.
We provide full communications services in all 31 provinces, autonomous regions and directly-administered municipalities in the mainland of China as well as in Hong Kong. Based on publicly available information, we are the leading provider of telecommunications and related services in the mainland of China and the largest provider of telecommunications and related services in the world as measured by the total number of mobile customers as of December 31, 2021. As of March 31, 2022, our total number of mobile customers reached approximately 967 million.
The History and Development of the Company
We were incorporated under the laws of Hong Kong on September 3, 1997 under the predecessor of the Companies Ordinance as a limited liability company under the name “China Telecom (Hong Kong) Limited.” We changed our name to “China Mobile (Hong Kong) Limited” on June 28, 2000 and then to “China Mobile Limited” on May 29, 2006.
Our ordinary shares are listed on the Hong Kong Stock Exchange and the Shanghai Stock Exchange. Our ADSs were delisted from the NYSE on May 18, 2021. In light of the delisting, we terminated our ADSs program subsequently on September 13, 2021 and therefore, we no longer have any ADSs outstanding. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Transactions in our ordinary shares by U.S. persons beyond specified dates are prohibited and our ADSs were delisted.”
Expansion Through Acquisitions
At our inception, our mobile operations included those in Guangdong Province and Zhejiang Province, conducted by Guangdong Mobile (formerly known as Guangdong Mobile Communication Company Limited), and China Mobile Group Zhejiang Co., Ltd. (formerly known as Zhejiang Mobile Communication Company Limited), or Zhejiang Mobile, respectively. As part of the restructuring in preparation for our initial public offering in 1997, the former Ministry of Posts and Telecommunications transferred to us a 100% equity interest in Guangdong Mobile and a 99.63% equity interest in Zhejiang Mobile. We subsequently increased our shareholding in Zhejiang Mobile to 100%.
We carried out a series of acquisitions between 1998 and 2004, through which we acquired from CMCC, our parent company, mobile operations conducted by its other regional subsidiaries. As a result, we significantly expanded the geographical coverage of our operations to all 31 provinces, autonomous regions and directly-administered municipalities in the mainland of China.
In addition, we acquired all of the issued and outstanding shares of China Resources Peoples Telephone Company Limited (currently known as China Mobile Hong Kong Company Limited, or Hong Kong Mobile), a mobile services provider based in Hong Kong, in 2006. As a result, we expanded the geographical coverage of our operations to Hong Kong.
 
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In 2011, we, through our wholly-owned subsidiary, CMC, acquired 100% of the share capital of China Topssion Communication Co., Ltd., or Topssion, a company primarily engaged in the sale of mobile phone handsets and devices, for an aggregate purchase price of RMB237,070,000 (approximately US$37,667,000). CMC subsequently transferred 1% of the share capital of Topssion to CMCC, and further subscribed to additional share capital of Topssion. Topssion thereafter changed its name to China Mobile Device. As of March 31, 2022, we held a 99.97% equity interest in China Mobile Device.
In 2015, we, through our wholly-owned subsidiary, China Mobile Tietong Company Limited, or CM Tietong, acquired Target Assets and Businesses of China Tietong, for a final consideration of RMB31,967 million (approximately US$4,934.9 million). The acquisition was completed in December 2015. We expect that our acquisition of Target Assets and Businesses from China Tietong will facilitate our transformation into a full-service operator offering both fixed-line and mobile services.
These acquisitions have significantly enlarged our customer base and expanded the geographical coverage and scope of our business. The integration of these acquired operations has also enabled us to realize synergies and economies of scale. For a description of our recent investments and capital expenditures, see “—Business Overview—Investments and Acquisitions” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Material Cash Requirements.”
Industry Restructuring and Changes in Our Shareholding Structure
Prior to 1993, all public telecommunications networks and services in the mainland of China were controlled and operated by the former Ministry of Posts and Telecommunications through the former Directorate General of Telecommunications, provincial telecommunications administrations and their city and county level bureaus.
Between 1993 and 2008, the telecommunications industry of the mainland of China underwent significant reforms and restructuring that resulted in an improved competitive environment and enhanced regulation of the industry.
In March 2008, the MIIT was created as the industry regulator providing industry policy guidance and exercising regulatory authority over all telecommunications services providers in the mainland of China, including, among others, formulating and enforcing industry policy, standards and regulations, granting telecommunications licenses and permits, formulating interconnection and settlement standards for implementation between telecommunications networks, formulating tariff and service charge standards for certain telecommunications services together with other relevant regulatory authorities, supervising the operations of telecommunications services providers, promoting fair and orderly market competition among operators, and allocating and administering public telecommunications resources.
On May 24, 2008, the MIIT, the National Development and Reform Commission, or the NDRC, and the MOF jointly issued a joint announcement relating to the further reform of the telecommunications industry in the mainland of China, which led to a future restructuring of the then-existing telecommunications services providers. The restructuring resulted in the consolidation of the telecommunications industry in the mainland of China into three service providers: China Telecom, China Unicom and CMCC.
As a result of the industry restructuring in 2008 and early 2009, principal participants in the telecommunications industry in the mainland of China, other than China Tietong and us, also include China Telecom and China Unicom. China Telecom and China Unicom since then operate both mobile and fixed-line services. On November 27, 2015, CM Tietong, our wholly-owned subsidiary, entered into the Acquisition Agreement with China Tietong, pursuant to which CM Tietong has agreed to acquire Target Assets and Business. The acquisition was completed in December 2015.
On July 11, 2014, CMC entered into a promoters’ agreement with China Telecom and CUCL, a wholly-owned subsidiary of China Unicom, to establish China Tower, which had a registered capital of RMB10 billion. Pursuant to the promoters’ agreement, we have made an investment of RMB4,000 million and indirectly owned a 40% equity interest in China Tower. On October 14, 2015, CMC entered into an agreement on transfer of its then-owned telecommunications towers and related assets, or Tower Assets, for issuance of consideration shares and payment in cash, or the Transaction Agreement, with CUCL, China Telecom, China Reform Holdings Corporation Limited, or CRHC, and China Tower. Following the completion of the transaction on October 31, 2015, China Tower was owned by CMC, China Telecom, China Unicom and CRHC as to 38%, 27.9%, 28.1% and 6%, respectively. CMC transferred its existing telecommunications towers and related assets to China Tower for a final consideration of RMB102,736 million (approximately US$15,859.7 million). On July 8, 2016, CMC entered into the Lease Agreement, with China Tower, pursuant to which CMC agreed to lease from China Tower telecommunications towers and related assets acquired and newly constructed by China Tower. On January 31, 2018, the parties entered into a supplementary agreement to the Lease Agreement. China Tower completed its initial public offering and listed on the main board of the Hong Kong Stock Exchange, in August 2018, and as a result, our equity interest was diluted from 38% to approximately 28%. As of March 31, 2022, we indirectly owned approximately 28% equity interest in China Tower.
 
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Organizational Structure
As of March 31, 2022, CMCC owned 69.82% equity interest in us directly or indirectly. We operate in all 31 provinces, autonomous regions and directly-administered municipalities throughout the mainland of China and in Hong Kong. As of March 31, 2022, we owned, directly or through intermediate holding companies, 100% equity interests in the following companies:
 
     
   
•  China Mobile Communication Co., Ltd.
  
•  China Mobile Group Hubei Co., Ltd.
   
•  China Mobile Group Guangdong Co., Ltd.
  
•  China Mobile Group Hunan Co., Ltd.
   
•  China Mobile Group Zhejiang Co., Ltd.
  
•  China Mobile Group Shaanxi Co., Ltd.
   
•  China Mobile Group Jiangsu Co., Ltd.
  
•  China Mobile Group Shanxi Co., Ltd.
   
•  China Mobile Group Fujian Co., Ltd.
  
•  China Mobile Group Neimenggu Co., Ltd.
   
•  China Mobile Group Henan Co., Ltd.
  
•  China Mobile Group Jilin Co., Ltd.
   
•  China Mobile Group Hainan Co., Ltd.
  
•  China Mobile Group Heilongjiang Co., Ltd.
   
•  China Mobile Group Beijing Co., Ltd.
  
•  China Mobile Group Guizhou Co., Ltd.
   
•  China Mobile Group Shanghai Co., Ltd.
  
•  China Mobile Group Yunnan Co., Ltd.
   
•  China Mobile Group Tianjin Co., Ltd.
  
•  China Mobile Group Xizang Co., Ltd.
   
•  China Mobile Group Hebei Co., Ltd.
  
•  China Mobile Group Gansu Co., Ltd.
   
•  China Mobile Group Liaoning Co., Ltd.
  
•  China Mobile Group Qinghai Co., Ltd.
   
•  China Mobile Group Shandong Co., Ltd.
  
•  China Mobile Group Ningxia Co., Ltd.
   
•  China Mobile Group Guangxi Co., Ltd.
  
•  China Mobile Group Xinjiang Co., Ltd.
   
•  China Mobile Group Anhui Co., Ltd.
  
•  China Mobile Group Design Institute Co., Ltd.
   
•  China Mobile Group Jiangxi Co., Ltd.
  
•  China Mobile Hong Kong Company Limited
   
•  China Mobile Group Chongqing Co., Ltd.
  
•  China Mobile International Limited
   
•  China Mobile Group Sichuan Co., Ltd.
  
•  China Mobile IoT Company Limited
   
•  China Mobile Information Technology Company Limited
  
•  China Mobile Online Services Co., Ltd.
   
•  China Mobile (Suzhou) Software Technology Co., Ltd.
  
•  China Mobile (Hangzhou) Information Technology Company Limited
   
•  MIGU Company Limited
  
•  China Mobile Internet Company Limited
   
•  China Mobile Tietong Company Limited
  
•  China Mobile Financial Technology Co., Ltd.
   
•  China Mobile Investment Holdings Company Limited.
  
•  China Mobile (Shanghai) ICT Co., Ltd
   
•  China Mobile (Chengdu) ICT Co., Ltd.
  
•  China Mobile
E-Commerce
Co., Ltd.
   
•  China Mobile Xiong’an ICT Co., Ltd.
  
•  China Mobile System Integration Co., Ltd. (formerly known as China Mobile Quantong System Integration Co., Ltd.)
   
•  China Mobile Information System Integration Co., Ltd.
    
 
 
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In addition, we own a 99.97% equity interest in China Mobile Device, a 92% equity interest in China Mobile Finance, and a 66.41% equity interest in Aspire Holdings Limited, or Aspire, a company incorporated in the Cayman Islands.
For detailed information about our group structure and significant subsidiaries, see “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders” and note 19 to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
General Information
Our principal executive offices are located at 60
th
Floor, The Center, 99 Queen’s Road Central, Hong Kong, China; telephone:
852-3121-8888.
We also maintain a regional headquarters in each of our regional mobile companies in the mainland of China and Hong Kong. Our web site address is www.chinamobileltd.com. The information on our web site is not a part of this annual report on Form
20-F.
The United States Securities and Exchange Commission, or SEC, maintains a website at www.sec.gov which contains in electronic form each of the reports and other information that we have filed electronically with the SEC.
Business Overview
Over the past several years, we have achieved a number of technological improvements and upgrades to our core network, which has evolved into an integrated network that is capable of supporting transmissions in all of our services using different generations of mobile technologies. See “—Mobile Networks” below. In addition, our acquisition from China Tietong of Target Assets and Businesses, has facilitated our transformation into a full-service operator offering both fixed-line and mobile services, enabling us to expand our customer base, increase our wireline broadband network capacity, coverage and efficiency through an integrated network and seize growth opportunities in the wireline broadband market. See “—The History and Development of the Company—Industry Restructuring and Changes in Our Shareholding Structure.”
On April 3, 2018, the MIIT granted to CMCC the permission to provide 4G services based on LTE FDD technology through us. In accordance with the permission, we have been promoting the development of mobile IoT and Industrial Internet nationwide, implementing the scale application of
TD-LTE/LTE
FDD convergence network and enhancing the quality of our high-speed broadband and mobile communications services. On June 6, 2019, the MIIT granted the basic telecommunications service operating permit for 5G digital cellular mobile service to CMCC. We have been providing 5G services since November 2019. In addition, we continuously devote substantial resources in the innovation of our products and services to deliver better customer experience. We believe our efforts in implementing our business strategies will advance our transformation into a full-service provider and our development toward a world’s leading telecommunications operator in digital innovation.
Our Business Strategy
A new wave of technological revolution and industry transformation characterized by digitalization, networkization and intelligentization has emerged, integrating 5G, AI, IoT, cloud computing, big data, edge computing, blockchain and other next-generation information technologies into the economy, society and people’s livelihood. Every industry has embarked on digital transformation, presenting unprecedented opportunities in the blue-ocean digital economy.
 
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We are now at an historic moment facing a new direction of development. In this context, we have given wider connotation to our “Powerhouse” strategy. We have come up with a clear “4x3” strategic core. First, we will speed up the “three changes,” which are the overall direction of our transformation. We are changing our business development from telecommunications services to information services, from the primarily “Customer” (To C) market to all four CHBN markets (namely, the “customer” market, the “home” market, the “business” market and the “new” market), and from being resource-driven to being innovation-driven. Second, we will follow “three new directions”.. We are promoting new infrastructure, integrating new elements and instigating new momentum. Third, we will reinforce the “three approaches”. We are setting up a scale-based and value-oriented business operating system with an emphasis on business convergence, integration and digitalization. Fourth, we will strengthen the “three forces”, which, together with the “three trends”, are the main strategy of our transformation. We are building up an organization structure incorporating our capabilities, collaboration and vitality to deliver high operating efficiency and synergy across operations. In light of the accelerated digital transformation of the economy and society, our strategy is to expedite the construction of information “highway” consisting of first-class new information infrastructure and operate information “high-speed train” by introducing innovative operating practices and exploring new use cases, products and business forms relating to information services.
“Customer” Market.
With the support of our 5G technology, we further enhanced the unified product system comprising data access, applications, and customer benefits and strengthened the joint operations of our three consumer brands – GoTone,
M-zone
and Easy Own. On the one hand, by launching a full suite of packages and devices, and with a target on network customers, we strove to occupy an advantageous position in the competitive market and manage different customer groups with precision. In view of the potential migration of 4G customers to 5G customers, we integrated our business development efforts to drive 4G customers to switch to 5G plans. On the other hand, we focused on customer benefits by enriching the benefit categories, introducing new benefit plans and optimizing the benefit experience. We enhanced our customer-oriented benefit operations for customers in different usage scenarios and optimized our precise benefit recommendation capabilities to drive our revenue growth from benefit offerings. Driven by the development of our 5G technologies and coupled with integrated product benefit operations, revenue from the “customer” market reversed its downward trajectory and recorded positive growth. As of December 31, 2021, our 5G network customer base reached 207 million, accounting for 21.6% of the total number of mobile customers. With a net addition of 148 million customers during 2021, equivalent to a monthly average net addition of more than 12 million customers, we boasted an industry-leading growth rate in 5G business. Post 5G migration, the average revenue per user per month, or ARPU, and the average handset data traffic per user per month of 5G customers reached RMB82.8 and 22.0 gigabytes, representing a growth of 7.5% and 18.6%, respectively, showing promising growth potential for the value of the 5G business.
“Home” Market.
We focused on enhancing our broadband quality. Following China’s Dual Gigabit Network Coordinated Development Action Plan, we strove for the synchronized coverage of gigabit-speed networks and 5G networks by implementing both networks in high-value residential estates. We optimized smart home network comprising of WiFi, Fiber to the Room, or FTTR, and network deployment solutions in order to increase the speed of our broadband. Guided by the needs of customers and the goal of value-oriented operations, we focused on online education, online healthcare, and other typical household applications to develop new family information services. Aligning with the Smart Community and Digital Village initiatives, we drove the scale and value growth of services such as family WiFi, home security, “big screen”
content-on-demand,
and smart voice services. By expanding the broadband customer base, building our brand in the market of gigabit-speed networks, and launching new initiatives including “Home Data Information Communications Technology,” or HDICT, an integrated family management and service solution provided with the comprehensive application of home data, information, and communications technology, we achieved rapid growth in the “Home” market with a steady increase in customer value. As of December 31, 2021, the number of household broadband customers reached 218 million, with the number of average net additional customers per month exceeding 2.15 million. Our digital
set-top
box “Mobaihe” registered a total of 167 million customers as of December 31, 2021, with a net addition of 26.57 million and a continuous increase in penetration rate in 2021. The number of customers using our smart home network, “big screen” contents, home security and other smart home applications scaled up rapidly. We launched 134 HDICT showcases. The revenues from household broadband and smart home application services in 2021 increased by 16.6% and 33.1%
year-on-year
respectively, driving further growth in our household broadband blended ARPU.
 
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“Business” Market.
We continued to grow in scale and customer value, focus on key products, and develop our governmental and corporate solution lists. Under the guidance of improving scale, quality, and service, we continued to enhance the quality of basic products, such as dedicated lines, IoT, enterprise SMS and MMS, to scale the growth of the corporate business. We built an industry-leading cloud business, developed more signature products and enhanced product quality. The technology of more than 20 of our products, including cloud server, cloud hardware and elastic public network IP, was at the forefront of the industry. Public cloud offerings have become the driver for our customer base expansion and private cloud offerings the driver for revenue growth, enabling us to achieve an industry-leading growth rate in the mobile cloud market. We also maintained our 5G leadership through launching benchmark showcases for the commercialization of “5G+AICDE,” which stands for 5G based integrated use of AI, IoT, cloud computing, big data, and edge computing. With the implementation of 5G technology during the digital transformation of various sectors, our revenue from 5G network increased significantly. In 2021, the revenue from industry cloud amounted to RMB19.2 billion, with a
year-on-year
growth rate of 109.6%. As of December 31, 2021, We launched more than 230 proprietary IaaS (Infrastructure as a Service), PaaS (Platform as a Service) and SaaS (Software as a Service) products, and more than 2,700 jointly developed SaaS products. Our revenues from IDC (Internet Data Center), ICT (information and communications technology) and dedicated lines reached RMB21.6 billion, RMB14.4 billion and RMB26.4 billion, respectively, representing increases of 33.2%, 35.2% and 10.0%
year-on-year,
respectively. In 2021, our smart IoT connections reached 1.049 billion, a net addition of 175 million connections compared to 2020, and our revenue from IoT was RMB11.4 billion, representing a growth of 21.3% compared to 2020.
“New” Market.
We focused on four key areas, namely international business, equity investment, digital content and financial technology. In terms of the international business, we strove to minimize the negative impact of
COVID-19
while expanding our international operations and business scale. Our international business growth maintained positive growth momentum. To enhance the quality of our
end-to-end
service and expand the business network, we continued to upgrade the infrastructure of our international network comprising Information Highways (connectivity resources), Information Stations (PoPs, Points of Presence) and Information Islands (data centers), and improved the quality of our cross-border cloud network, DICT and other key products. In terms of equity investment, we generated synergy through a combination of direct investments and investment funds. Our direct investments focused on products, networks, and
mid-end
platforms that are key to the digital transformation of the industry, in order to expand our collaborative network of information services. For investment funds, we built up a professional and market-oriented capital management system, leveraging the funds as an amplifier and radar in the market to spot new technology and growth opportunity, and to further unleash the potential of capital. In terms of digital content, we leveraged our position as a content synthesizer and producer to foster an industry-leading content ecosystem. With a focus on sports, we continued to solidify our leadership as provider of sports and culture related digital content. The number of active users of MIGU Video, cloud-based games and video connecting ringtones grew rapidly. During the Beijing 2022 Winter Olympics, MIGU Video were able to use innovative technology such as 5G+Ultra-high-definition streaming,
AI-powered
subtitles, multi-screen viewing and HDR Vivid, and delivered the most comprehensive livestreaming content covering all 530 games, which received very positive market feedback. In terms of financial technology, both the monthly average number of customers who made a transaction through our brand,
“and-Wallet,”
and our revenue of internet finance in 2021 doubled compared to 2020. Our advantages in big data helped us to expand our business into credit purchase, increase the portion of our products that can be purchased with credit, and run the largest offline purchase by installment platform in China. We also cooperated with Industrial and Commercial Bank of China to launch the world’s first super
SIM-based
digital currency payment product.
In terms of long-term strategy, we will continue to focus on the following four areas: Firstly, we will strengthen our leading position in 5G era through delivering high-quality 5G services powered by advanced technology, and build new information infrastructure for providing 5G services, CFN (Computing Force Network) and a smart
mid-end
platform. Secondly, we will continuously work on the development of four CHBN markets and the creation of a new information services system integrating connection, computing power and capabilities. Thirdly, we will systematically optimize our management system and further improve our service quality. Lastly, we will strive for more technological innovations. With a goal of creating a world-class information services and technology innovation enterprise, we will focus on the integration and application of information technology and data to develop a new growth model and an industry ecosystem driven by digitalization. We will seize new growth opportunity through information technology innovation, and promote wider application of information technology in the economy, society, and people’s livelihoods.
Customers and Usage
We continued to expand our customer base with a focus on rural markets, younger and elderly population and vertical sectors. Our mobile customer base has increased from approximately 942 million at the end of 2020 to approximately 957 million at the end of 2021. As of March 31, 2022, we had approximately 967 million mobile customers, including approximately 467 million 5G package customers. Our total number of wireline broadband customers achieved a substantial growth from 210 million by the end of 2020 to 240 million by the end of 2021, and reached approximately 249 million as of March 31, 2022.
Due to the increasing mobile penetration rate and intensified competition among telecommunications operators and from competitors in related industries, our overall mobile customer base may continue to decline or fail to grow as fast as it has over the past few years. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—The increasing competition from other telecommunications services providers and competitors in related industries and changes in the competitive landscape of the telecommunications industry in the mainland of China may reduce our market share and decrease our profit margin.”
 
-24-

Our total voice usage was 2,996.9 billion minutes in 2021, representing a slight decrease by 1.2% from 2020. Our SMS usage totaled 913.6 billion messages in 2021, representing a decrease by 4.7% from 2020. The decrease in our voice usage is mainly due to the substitution effect of Over The Top services, such as instant messaging, VoIP services, or audio or video content services delivered over the Internet, while the decrease in our SMS usage primarily resulted from the decrease in number of SMS for charity purpose.
Our total handset data traffic increased to 124.84 billion gigabytes in 2021, representing an increase of 37.7% from 2020. Our average handset data traffic per user per month reached 12.6 GB in 2021, representing an increase of 34.0% from 2020. The significant rise in our handset data traffic usage is primarily driven by our preferential tariff plans, more comprehensive product offerings of mobile applications, robust network capabilities, enhanced customer service quality and increased efforts in precision marketing.
The following table sets forth selected historical information about our customer base and customer usage as of or for the periods indicated.
 
                         
    
As of or for the year ended December 31,
 
    
2019
    
2020
    
2021
 
Mobile Business
                          
Customer base (in millions)
     950.3        941.9        956.9  
of which: 5G package customer base (in millions)
     2.55        165        387  
Total voice usage (in billions of minutes)
     3,224.8        3,032.4        2,996.9  
Handset data traffic (in billions of gigabytes)
     65.89        90.66        124.84  
Average minutes of usage per user per month (minutes)
(1)
     287        267        264  
Average handset data traffic per user per month (GB)
(2)
     6.7        9.4        12.6  
Average revenue per user per month (RMB)
(3)
     49.1        47.4        48.8  
Wireline Broadband Business
                          
Customer base (in millions)
     187.0        210.3        240.1  
Average revenue per user per month (RMB)
(4)
     32.8        34.0        34.7  
IoT Business
                          
IoT smart connections (in millions)
     884        873        1,049  
 
 
(1)
Calculated by (A) dividing the total minutes of usage during the relevant year by the average number of customers during the year (calculated as the average of the numbers of customers at the end of each of the 13 calendar months from the end of the previous year to the end of the current year) and (B) dividing the result by 12.
(2)
Calculated by (A) dividing the total handset data usage during the relevant year by the average number of handset data users during the year and (B) dividing the result by 12.
(3)
Calculated by (A) dividing the revenue from mobile services during the relevant year by the average number of mobile customers during the year (calculated as the average of the numbers of customers at the end of each of the 13 calendar months from the end of the previous year to the end of the current year) and (B) dividing the result by 12. The revenue from mobile services in 2019, 2020, and 2021 is derived from our consolidated statements of comprehensive income for the years ended December 31, 2019, 2020 and 2021, respectively.
(4)
Calculated by (A) dividing the revenue from wireline broadband services during the relevant year by the average number of wireline broadband customers during the year (calculated as the average of the numbers of customers at the end of each of the 13 calendar months from the end of the previous year to the end of the current year) and (B) dividing the result by 12.
Businesses
Our businesses primarily consist of voice business, SMS and MMS, wireless data traffic services, wireline broadband services, and applications and information services.
Voice Business.
Our voice business includes voice usage services and voice value-added services.
 
 
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Our voice usage services focus on enabling our customers to make and receive calls with a mobile phone at any point within the coverage area of our mobile networks. The services include local calls, domestic long-distance calls, international long-distance calls, domestic roaming and international roaming. Our voice usage services experienced a decrease due to a decline in total voice usage by 1.2% in 2021 from 2020, as a result of the substitution effect of Over The Top services and reduced voice tariff.
Our voice value-added services mainly include caller identity display, caller restrictions, call waiting, call forwarding, call holding, voice mail, conference calls and other services.
SMS and MMS.
SMS refers to services that employ the existing network resources and the corresponding functions of mobile terminals to deliver and receive text messages. SMS offers convenience and multi-functionality to our customers. MMS is a technology that allows users to exchange multimedia communications, such as graphics, animated color pictures, sound files and short text messages, over wireless networks. Our SMS usage decreased from 958.3 billion messages in 2020 to 913.6 billion messages in 2021 due to the decrease in number of SMS for charity purpose, and our revenue generated from SMS and MMS increased from RMB29,485 million in 2020 to RMB31,100 million (US$4,880 million) in 2021.
Wireless Data Traffic Services.
Our wireless data traffic business primarily includes handset data traffic services. Revenue generated from our wireless data traffic business reached RMB392,859 million (US$61,648 million) in 2021, compared to RMB385,679 million in 2020, representing 52.3% of revenue from telecommunications services.
Our handset data traffic service is a service that we provide to our customers that enables mobile access to the Internet through 2G, 3G, 4G or 5G networks via handsets. The growth in handset data traffic service in 2021 was primarily driven by our preferential tariff plans, continuous enrichment of data products, more comprehensive product offerings of mobile applications, robust network capabilities, enhanced customer service quality and increased efforts in precision marketing.
Our handset data traffic reached 124.84 billion gigabytes in 2021, a significant increase from that of 90.66 billion gigabytes in 2020.
Wireline Broadband Services.
Our wireline broadband business offers primarily the wireline broadband data traffic service, including household broadband services, corporate broadband services and Internet dedicated lines services. Revenue generated from our wireline broadband business increased to RMB94,230 million (US$14,787 million) in 2021, representing an increase by 16.6% from RMB80,808 million in 2020, and the average revenue per user per month increased from RMB34.0 in 2020 to RMB34.7 in 2021.
Applications and Information Services
.
Our applications and information services primarily include network resources services, mobile applications, home digital services, IoT, ICT, Mobile Cloud and big data. Revenue generated from our applications and information services reached RMB136,961 million (US$21,492 million) in 2021, compared to RMB101,038 million in 2020.
Our network resources services mainly include IDC services and voice and data dedicated line services. Our IDC services refer to our colocation, internet connection and other value-added services, and our dedicated line services refer to our data and voice services provided through exclusive lines to corporate customers.
We closely monitor and follow the industry trend in our development of applications and information services, and have extended our business into various emerging areas, such as IoT, home digital services, mobile payment, digital contents and other services. We have established several specialized companies, including, among others, China Mobile IoT Company Limited, China Mobile Internet Company Limited and MIGU to focus on these areas. We also established centralized public IoT networks with 1,049 million IoT smart connections as of December 31, 2021. Our home digital services include high-definition
video-on-demand
services provided through Mobaihe
set-top
box, smart home network deployment,
“and-Mu”
family surveillance camera and IMS fixed line services. Subscribers to Mobaihe reached 167 million at the end of 2021, compared to 141 million at the end of 2020. We will continue to promote our digital services, explore new growth drivers, further advance the market-orientated innovation, so as to strengthen our position in the competitive digital landscape.
Please see “Item 5. Operating and Financial Review and Prospects—Results of Operations—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020” and “Item 5. Operating and Financial Review and Prospects—Results of Operations—Year Ended December 31, 2020 Compared to Year Ended December 31, 2019” for more information about our service revenue.
 
 
-26-

Tariffs
Our tariffs are subject to regulation by various government authorities, including the MIIT, the NDRC and the relevant price regulatory authorities in the mainland of China. The MIIT has continued encouraging mobile operators in the mainland of China to implement the caller-party-pays regime, and mobile operators, including us, have been implementing the caller-party-pays regime. In particular, all of the new calling plan packages that we offer in the mainland of China are generally based on tariffs equivalent to the caller-party-pays regime. In May 2014, the PRC regulators further promulgated policies to permit mobile services providers to set the tariffs of all telecommunications services. Our international roaming usage charges are set in accordance with agreements with the relevant foreign mobile operators.
We offer our customers a variety of tariff packages that have varied monthly charges, minimum charges for basic usage, charges for usage exceeding the covered basic usage, fixed charges for selected features and functions, as well as charges for voice value-added services. We offer tariff packages with respect to wireless data traffic business, or charge the tariff by the actual data traffic usage. We also offer different tariff packages with respect to SMS and MMS, and applications and information services.
We have flexible tariff plans distinguishing between peak time and
non-peak
time usage, and offer tailored service plans based upon the needs of different customer groups as well as our network resources. Given the rapid growth in mobile penetration rate and increased competition, in order to remain competitive in terms of price and performance with other mobile operators we provide certain discounts and promotional offers, including large data packages, in and during certain service areas and call periods targeting various customers.
Since May 2015, in response to the expectations of the general public and customers and in order to implement the relevant national policy, we, in addition to continue enhancing network capacity and increasing network speed, launched customized voice and data tariff plans at lower rates to meet a variety of customer needs, particularly, to reduce the tariffs for
out-of-plan
data usage and international roaming in certain countries and regions. With respect to our data traffic tariff, we launched an unused data traffic carry-over program for our mobile monthly plans that are charged based on
pre-determined
data traffic, according to which customers could carry over their monthly plan’s remaining unused data traffic to the following month in October 2015. In May 2017, we rolled out a series of preferential data traffic plans as one of our tariff reduction measures.
In addition, we took an orderly and balanced approach in reducing voice tariff. In August 2015, we cancelled the domestic long-distance and roaming tariffs for voice services within the tariff zones of Beijing Municipality, Tianjin Municipality and Hebei Province so that our customers are only charged with local usage tariff for our voice services provided within the tariff zones. Similarly, we extended the same tariff policies to the tariff zones of Sichuan Province and Chongqing Municipality in October 2016. In March 2018, the PRC government announced additional policy requirements relating to network speed upgrade and tariff reduction, including, among other things, to achieve full coverage of high-speed broadband in urban and rural areas, to expand free Internet access in public places, to significantly reduce the tariffs of household broadband and Internet dedicated line services, to cancel domestic data “roaming” charges, namely, to unify the charges for data consumed within and outside of the province of the customers’ residence, and to reduce handset data traffic tariff by at least 30% in the year of 2018. Accordingly, we launched a number of preferential tariff plans, including large data packages, for our mobile data services, household broadband services, dedicated line services and international roaming services in 2018. Starting from July 1, 2018, we no longer charge tariffs for domestic data roaming. Additionally, as a result of our efforts in cooperation with overseas telecommunications operators, our international roaming tariffs further decreased in 2018. In March 2019, the PRC government in its 2019 work report introduced further “speed upgrade and tariff reduction” measures, including directives to (i) further reduce the broadband tariffs for small and medium enterprises by 15% on average and the tariffs for handset data by no less than 20% on average, and (ii) implement mobile number portability programs in the mainland of China by the end of 2019. The PRC government further required (i) in its 2020 work report, a 15% reduction in the average broadband and dedicated line tariff and (ii) in its 2021 work report, a 10% reduction in the average broadband and dedicated line tariff for small and medium enterprises. We may be required to further adjust our tariff under the “speed upgrade and tariff reduction” policy or implement other similar policies to be issued by the PRC government in the future. We will implement these state policies while striving to further integrate our businesses and promote product innovation.
 
 
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The reduction in tariffs as a result of these measures, on the one hand, has had, and we expect that it will continue to have, adverse impact on our financial condition and results of operations. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our tariff reduction and future policy developments in the telecommunications industry in relation to tariff reduction may continue to adversely affect our financial conditions.” On the other hand, we have implemented a number of measures to enhance our data traffic operations in response to the “speed upgrade and tariff reduction” initiatives. For example, in our efforts to enhance customer experience, we continued to increase our network speed. We believe these initiatives will, in the long run, facilitate the transformation of our business model to focus on data traffic and digital services.
For our wireline broadband services and applications and information services, we determine tariffs mainly according to market conditions.
Interconnection
Interconnection refers to various arrangements that permit the connection of our networks to other mobile or fixed-line networks. These arrangements provide for the sharing and settlement of revenues from the base usage charges and, if applicable, roaming charges and long-distance charges.
Under the current telecommunications regulations, parties seeking interconnection must enter into an interconnection agreement. In addition, major telecommunications services providers that have control over essential telecommunications infrastructure and possess significant market share must allow interconnection to their networks by other operators. These telecommunications services providers must also establish interconnection rules and procedures based on the principles of
non-discrimination
and transparency and submit such rules and procedures to the MIIT for approval. The termination of any interconnection arrangements will require prior approval by the MIIT. The applicable regulations provide that interconnection related equipment must conform to the technical standards approved by the MIIT. See “—Regulation—Technical Standards” below.
Our interconnection arrangements with other telecommunications operators enable our subscribers to communicate with the subscribers of those operators through making and receiving local, domestic and international long-distance calls. Each of our operating subsidiaries has interconnection agreements with those operators in its service area. The economic terms of these agreements are generally standardized from province to province.
The MIIT has made adjustments to the public telecommunications network interconnection settlement standards of basic telecommunications operators in the mainland of China. With effect from January 1, 2014, when mobile users of China Telecom and China Unicom in the mainland of China and our mobile users in the mainland of China (excluding
TD-SCDMA
users with specified prefix numbers of 157 and 188) make calls to each other, the settlement charges payable by China Telecom and China Unicom to us were adjusted from RMB0.06/minute to RMB0.04/minute, while the settlement charges payable by us to China Telecom and China Unicom remained at RMB0.06/minute. The MIIT expects to assess the above interconnection settlement policy once every two years based on the development conditions of the telecommunications market and will make adjustments when appropriate. With effect from July 1, 2020, when mobile users of China Telecom and China Unicom in the mainland of China and our
TD-SCDMA
users with specified prefix numbers of 157 and 188 make calls to each other, the settlement charges payable by us to China Telecom and China Unicom were adjusted from RMB0.012/minute to RMB0.06/minute while the settlement charges payable by China Telecom and China Unicom to us remained at RMB0.06/minute. When users of different basic telecommunications operators in the mainland of China send SMS or MMS to each other, the settlement charges for SMS were adjusted from RMB0.03/message to RMB0.01/message, and the settlement charges for MMS were adjusted from RMB0.10/message to RMB0.05/message.
In January 2020, the MIIT issued a notice on adjusting the settlement arrangement standards for Internet backbone network interconnections, pursuant to which, starting on July 1, 2020, the respective parent companies of China Telecom and China Unicom would cease to charge CMCC, our parent company, the current
one-way
payment of interconnection fees for Internet backbone network interconnections between CMCC and the parent company of China Telecom or China Unicom. Instead, Internet backbone network interconnections would be settled by full peering without charges among CMCC and the respective parent companies of China Telecom and China Unicom.
Roaming
We provide roaming services to our customers, which allow them to access mobile services while they are physically outside of their registered service area or in the coverage areas of other mobile networks in other countries and regions with which we have roaming arrangements.
 
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A mobile customer using domestic roaming services is charged at our roaming usage charges or, for outgoing international long-distance calls, international long-distance charges. A mobile customer using international roaming services incurs charges based on tariffs that vary depending on whether it is an incoming call or an outgoing call and on the destination of the call. In recent years, our international and domestic roaming usage charges have generally declined, resulting in lower average revenue per minute from roaming services. For example, since 2015, we reduced the international data roaming charges in certain countries and regions and cancelled the domestic long-distance and roaming charges for voice services within the tariff zones in Beijing-Tianjin-Hebei and other designated regions and the tariff zones in Sichuan Province and Chongqing Municipality. We cancelled all handset domestic long-distance and roaming tariffs since September 1, 2017. In addition, we further lowered our international roaming charges since 2016 in response to customers’ expectation, and our international roaming voice usage increased. See “—Tariffs.”
In December 2016, we initiated the
“Hand-in-Hand
Program,” a cooperation program among international telecommunications operators to jointly enhance network functionality and interconnection, aiming at delivering better international roaming experience for customers.
Research and Development
Our research and development, or R&D, functions are undertaken jointly by our research institute, our research centers in different cities and other relevant business units. The responsibilities of our research institute include defining our network and technology evolution roadmap, supporting the operation of existing networks and services, engaging in international standard setting activities and defining corporate specifications, leading the development and field testing of new products and services, procurement testing and certification of network devices, mobile terminals and information technology systems. In 2018, we set up three industrial research institutes in Chengdu, Shanghai and Xiong’an New Area, respectively, to explore collaboration opportunities with various participants in other industries, including finance, healthcare, transportation and smart city, among others, enhance our research capabilities and competitiveness in the vertical industries. In 2020, we set up additional R&D institutions in Jiangsu, Zhejiang and Guangdong and sped up the development of our smart
mid-end
platform.
Our main R&D efforts were focused on a number of aspects:
Setting Technical Standards and Promoting Industry Development for 5G Commercialization
.
We contributed to the development of
5G-related
technical standards by leading the formulation of twenty 3GPP and ITU standards and providing 170 key solutions. We helped to set the 3GPP R16 standards and led 47 projects in relation to 3GPP R17 standard-setting. Through commercial-scale experiments, we have improved the industrial readiness of the 2.6 GHz frequency band. We also completed the IoT testing of the basic functions of and the core networks under the SA standard. In addition, we published the 5G Wireless Evolution White Paper, which defines
5G-Advanced
technology and promotes network digitalization, setting the path for how 3GPP R18 standards are developed. Furthermore, we played an active role in the formulation of the
O-RAN
standard and established the Open Wireless Network Testing and Integration Center (OTIC) to promote the development of open-source and intelligent wireless networks.
Promoting network transformation and the convergence of cloud and network.
We formulated various strategies, including the integration of 5G and NFV/SDN, that laid the foundation for the commercialization of cloud-based networks. We continued to build up our cloud infrastructure under the guidance of “N + 31 + X” strategy, i.e. establishing a three-layer structure with numerous central resources, 31 provincial level resource pools, and multiple edge cloud nodes. As of December 31, 2021, we built 13 central nodes and over 480,000 cloud servers. In addition, the number of lines of code contributed by us to the 9th version of ONAP, an open network automation platform, ranked high among our peers.
Building technological capabilities in artificial intelligence, IoT, cloud computing, big data and edge computing.
(i) We launched our
in-house
R&D platform for artificial intelligence, which, together with our centralized big data platform, nurtures artificial intelligence capabilities in 30 key areas, including network intelligence and industrial quality inspection. (ii) We enhanced the value-added service capabilities of the IoT OneNET platform and supported the implementation of more than 10 industry projects. In addition, we have developed a proprietary IoT operating system based on an open source kernel. (iii) We formulated strategies for edge computing technologies and commenced trial operation for a proprietary cloud-based edge computing platform. (iv) We stepped up our research in
5G-related
security and took a lead in the formulation of China’s first 5G security industry standard. (v) We made progress in certain key technologies, such as industrial quality inspection, smart medical consultation, smart farming and high-precision positioning.
 
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Sales and Customer Services
We continue to optimize our customer service system that separate front- and back-line services and have established sales and services channels tailored to the needs of customers by providing electronic and mobile Internet channels.
Sales Channels
.
We offer our services through an extensive network of proprietary sales outlets, retail outlets and electronic sales and marketing channels. Our proprietary sales outlets, in addition to providing retail sales and network connection services, also offer differentiated services to customers, including, among others, billing information and payment collection, services consultation and sale of terminals. Most of our proprietary sales outlets provide training and service demonstrations to retail outlets, which, in turn, offer our services to customers according to agency agreements with us. In connection with these sales, all applicable fees payable after initial connection are paid to us. Our electronic channels offer services including, among others, subscription of voice value-added services and wireless data traffic services, change of tariff plans, credit loading for
pre-paid
services, sales of SIM cards and terminals and redemption of “Customer Reward” points. In addition, we are able to establish sales and service networks at lower cost by utilizing existing resources in rural areas to serve and expand our customer base in these areas. We have also established concept stores in major cities within the mainland of China to showcase our services and products, and to facilitate certain sales and marketing activities. In addition, we have undertaken further transformation of our marketing channels and rendered more traditional services via intelligent, Internet-based channels. We have also launched experiential and interactive marketing and services at some of our physical retail outlets in effort to transition to the “new retail” model.
Market Segmentation Strategy.
As customers’ demands for mobile telecommunications become more varied and complex, we have conducted research on market segmentation and have launched products which cater to the specific needs of different customer groups to increase awareness of our brand and products and maintain our customer base. Our marketing efforts focus on retaining
middle-to-high-end
customers. We have developed products, service packages and advertising and distribution channels unique to certain groups of customers, such as corporate customers and customers in the rural areas. With respect to corporate customers, we have focused on key services such as voice and data dedicated lines and IDC services, built a network-wide coordinated sales system targeting major corporate customers and have developed product series targeting corporate customers in key industries, such as public administration, finance, transportation, education, healthcare and agriculture. In terms of customers in the rural areas, in order to lower the barrier of using mobile phones, we have encouraged handset producers to introduce inexpensive handsets with moderate functions. We have also upgraded the three popular brands of “GoTone,”
“M-zone”
and “Easy Own” by providing new customer benefits, content and services.
Our strategy in attracting new customers and retaining existing customers is to continue to implement our customer classification and customer bonus points program. We classify our customers according to their level of value contribution and match them with differentiated service resources according to their level, with higher-level customers enjoying premium services. Our customer bonus points program is an important measure to this end, under which customers receive bonus points based on their service consumption and loyalty and may exchange their accrued bonus points for tariffs, data and other benefits.
Customer Services.
Our customer support service centers offer
24-hour
staff-answering and automatic-answering service hotlines in the mainland of China, dealing with customer enquiries regarding services and billing, as well as handling customer complaints. In 2018, we established a customer services department to coordinate our customer services efforts.
In 2021, we continued to optimize our customer service processes through efforts such as improving service quality at our sales outlets, 10086 hotline and online portal, in particular our online-based customer service. We have actively promoted electronic channels, including expanding the scope of services provided through our electronic channels and shortening the processing time at the electronic channels. In addition, we implemented service measures such as increasing transparency in the billing process, inquiry and services unsubscription function through SMS to ensure our customers would be fully informed of the payments they would make. We continued to block spam SMS and malicious software for our customers. Our ongoing improvement in customer services resulted in broader customer satisfaction in 2021.
 
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Service Quality.
We strive to improve the quality of our services through improvements in the quality of our infrastructure network and customer perception. We continue to upgrade our service quality management system and have created a transparent and secure communication platform. In particular, we started to integrate customer services resources to our 10086 customer service hotline operation, which increased our service efficiency and overall hotline connection rate. We have also improved our business support capabilities, especially in the areas of billing and services subscription support.
Additionally, we have devoted significant resources to network security to implement high standards of data privacy protection for our customers, aiming at creating a secure communication platform for our customers. We introduced resilient and protected features, such as our anti-fraud system utilizing big data technology and anonymization of personal data, so as to strictly protect the privacy of our customers. We implemented policies and procedures that target phishing, spam SMS and malware in order to reduce the spam, improper SMS and malware transmitted to our customers. We also implemented measures such as adopting the real-name registration system, refining our service process, providing instant channels to report spam and fraud, for purpose of early detection of, and quick response to, fraud.
Churn Management.
We have devised internal monitoring systems to detect customers who are prone to discontinue their subscriptions. In particular, our churn alert system prompts customer service representatives to proactively approach those customers, and customers who have recently discontinued their service, to improve customer relations and minimize churn.
Credit Control.
We have implemented customer identity and information checks during the customer registration procedures to assist in credit control. Direct debit services are available in each geographical area. The accounts of contract customers are required to be settled on a monthly basis, and a customer will be subject to late payment fees for amounts overdue and subject to account deactivation if the customer’s account remains overdue. As a majority of our existing customers
pre-pay
for our services, we have limited credit risk exposure to our customers. We make an impairment loss for doubtful accounts based on assumptions on the risks of default and expected loss rates.
Corporate Social Responsibility and Sustainable Development
We are committed to fulfilling our responsibilities to stakeholders and proactively pursuing shared and sustainable development with stakeholders while striving to contribute to the achievement of the Sustainable Development Goals for 2030.
The continuous
COVID-19
pandemic in 2021 severely influenced the lives of people and brought new challenges to society. In response, we made full use of 5G, cloud computing, big data, AI, and other information and communications technologies in the fight against
COVID-19.
We secured the lifelines of communications, service and support, contributing to the resumption of work, production and schooling, and helping society return to normal. We introduced more than 10 feature services including innovative cloud meetings, online learning and livestreaming to the general public. We took proactive measures to prevent and control the spread of
COVID-19
in our daily operations and care for our employees while encouraging them to pay attention to customers’ needs. These solid actions helped us protect the lives and well-being of our customers and employees.
In addition, we have successfully completed telecommunications and network security missions for various large-scale events, including the Beijing 2022 Winter Olympics. During the flood in Henan province in July 2021, we employed technological solutions such as using drones to form high-altitude base stations to support the rainstorm-stricken areas, securing communications during the rescue and disaster relief.
Furthermore, with a goal to alleviate poverty and modernize agriculture and rural areas, we launched a digital-intelligent rural revitalization plan based on the “1+3+X” framework plus rural revitalization model, which focused on improving the quality and capacity of digital service and applications in rural areas, in order to promote the modernization and intelligentization of agricultural sector and of rural areas, and contribute to the alleviation of poverty. We launched various charity campaigns, such as the “Blue Dream” education project, which has provided professional training for more than a cumulative of close to 130,000 primary and secondary school headmasters in rural villages in the Midwest of China. Meanwhile, the “Heart Caring” campaign has provided free congenital heart disease surgery to more than 7,000 children from underprivileged families. Our philanthropy platform was approved by the Ministry of Civil Affairs of China as one of the third batch of online fundraising information platforms, making us the first and only domestic telecommunications operator to be granted this qualification. We also played our part in pollution control, energy saving and emissions reduction to promote green development. The implementation of our “Green Action Plan” since 15 years ago continued to help us reduce our carbon footprint. In 2021, we published the C
2
Three Energy – China Mobile Carbon Peak and Carbon Neutrality Action Plan whitepaper in order to establish a new development model focusing on energy saving, clean energy and empowerment. The overall energy consumption per unit of our telecommunications business has dropped by 22.1% in 2021 compared to 2020, moving us closer to our goal of peaking carbon emissions and reaching carbon-neutral operations.
 
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Terminals
Since the launch of our 5G services in November 2019, we have been dedicated to the development of multi-mode, multi-band, and multi-form 5G terminals. Since January 1, 2020, we upgraded our 5G terminals to support SA mode, which provide better
end-to-end
support for the speed and services under 5G network, as compared to the NSA mode. In addition, we have been promoting the development of the 5G terminal industry through launching a variety of multi-form 5G terminals, including the 5G module, 5G CPE, 5G MiFi, 5G camera, and 5G PC. In 2021, we developed products including
set-top
boxes, intelligent gateways, intelligent routers, smart cameras and integrated gateways and actively developed 5G products such as 5G live broadcast
all-in-one
machines and 5G medical gateways. In 2022, we will continue to develop 5G devices for the “customer” market and the “business” market, explore new 5G applications and content to bolster our 5G service capabilities and develop smart IoT devices for the “home” market.
Information Systems
Our information systems primarily consist of a network management system, a business support system and a management information system. The network management system collects and processes the operating data from each network, and manages, supervises and controls our networks for safe and efficient operation. The business support system provides
day-to-day
operational support to each business unit, and is a unified and comprehensive system that enables the sharing of information resources. This system standardizes and integrates each of our sales, billing, settlement and customer service databases in a centralized and orderly manner. The management information system collects and processes our management information and provides support to our management personnel. In addition, this system has computerized and automated our management in finance, inventory, procurement and human resources. Furthermore, we have an internal communications network, which consists of our office automation system, our internal computer network, video conference system, telephone system and others, the combination of which supports our internal communications.
We devote significant resources to telecommunications network security, data security and other security measures to protect our systems and data, such as deploying network protection devices, performing regular security assessments and anonymizing personal data. In recent years, we have led the development of the Security Framework for VoLTE Network Operation, the Code of Practice for Personally Identifiable Information Protection, and the Security Guidelines of
Web-Based
Online Customer Service, all of which have been adopted by ITU Telecommunication Standardization Sector. Our information security projects have been awarded the WSIS Prizes Champion for three consecutive years from 2018 to 2020. We will further strengthen cyber security to provide support for our operations.
Trademark
We hold rights to various trademarks and other intellectual property rights necessary to conduct our business. We actively pursue the filing and registration of trademarks within the mainland of China and abroad.
We market our services under the “CHINA MOBILE” trademark, which is the trademark we use throughout the mainland of China. “CHINA MOBILE” is a registered trademark in the PRC owned by our parent company, CMCC. In June 2021, we entered into a trademark license agreement, or the 2021 Trademark License Agreement, to replace the trademark license agreement that we entered into in December 2017, or the 2018 Trademark License Agreement. Under the 2021 Trademark License Agreement, we and our operating subsidiaries have a
non-exclusive
right to use the “CHINA MOBILE” trademark in the mainland of China and Hong Kong. The term of the 2021 Trademark License Agreement is ten years, effective from June 7, 2021. No license fee is payable by us to CMCC during the term of the 2021 Trademark License Agreement or the 2018 Trademark License Agreement.
In 2013, we unveiled our new corporate logo. The new logo has been registered as a trademark in the mainland of China, Hong Kong, Macau, Taiwan, Brazil, Brunei, Canada, Chile, Indonesia, Malaysia, Nigeria, United Arab Emirates, Pakistan, Peru, Saudi Arabia, South Africa, Sri Lanka and Yemen, and an application as a trademark under the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks has been approved in 47 countries.
 
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Mobile Networks
We offer mobile services using the GSM standard, or the 2G standard, the
TD-SCDMA
standard, or the 3G standard, the
TD-LTE
standard, or the 4G standard, the LTE FDD standard, and 3GPP R15 standard, or the 5G standard.
The GSM standard is a pan-European mobile system based on digital transmission and mobile network architecture with roaming capabilities. Each of our GSM networks consists of base stations, base station controllers, mobile switching centers, transmission lines and software applications. We intend to use our GSM network to primarily carry voice usage and certain data traffic from mobile phones. Our GSM networks reach virtually all cities and counties and major roads and highways, as well as a substantial part of rural areas, throughout the mainland of China and, through the network of Hong Kong Mobile, a substantial part of Hong Kong. We operate our 3G business based on an Internet Protocol based core network that is shared by our 2G, 3G, 4G and 5G services as well as the
TD-SCDMA
network capacity leased from CMCC.
TD-LTE
is one of two models of LTE and a standard for the evolution of
TD-SCDMA
technology. We use the
TD-LTE
network to primarily carry high-bandwidth and high-quality wireless broadband businesses. Furthermore, we continue to grow our content delivery network to cover more areas and expand NB-IoT to achieve
end-to-end
scale commercial use. On April 3, 2018, the MIIT granted to CMCC permission to operate a LTE FDD business through us.
In addition, we have been providing 4G services in Hong Kong since 2012 with the LTE FDD and
TD-LTE
bandwidths we previously obtained from the Office of the Telecommunications Authority of Hong Kong.
We have been providing 5G services since November 2019. We have built over 730,000 5G base stations covering all prefecture-level cities, selected counties and key areas in China by the end of 2021. By doing so, we were able to meet network capacity needs during the initial phase of 5G commercialization. We have also promoted the maturity of SA products and industry development. As of March 31, 2022, the number of our 5G package customers had reached approximately 467 million.
Our customers currently use our 2G services, our 3G services, our 4G services, our 5G services or all of them. We intend to continue our network expansion and optimization with an emphasis on improving network utilization and operating efficiency, facilitating a smooth transition between, and integration of, our 2G, 3G, 4G and 5G services, and expanding the coverage and capacity of our integrated network. We believe that we have considerable network operation and maintenance experience and technical expertise.
Day-to-day
traffic management, troubleshooting, system maintenance and network optimization are conducted by our experienced team of engineers and technicians. Technical staffs are available for emergency repair work 24 hours a day and we employ specialist teams for central maintenance of the networks. Most technical difficulties relating to the networks are resolved by our staff and the maintenance service providers with which we have business relationships, while our equipment suppliers also provide
back-up
maintenance and technical support. We procure our network equipment and related maintenance and technical support mainly from a number of PRC and overseas telecommunications network equipment manufacturers and suppliers which include Huawei Technologies, ZTE Corporation, Nokia and Ericsson, among others.
Spectrum.
A mobile network’s capacity is to a certain extent limited by the amount of frequency spectrum available. In coordination with the relevant provincial authorities, the MIIT regulates the allocation of radio frequency. The frequency assigned to an entity is not allowed to be leased or, without approval of the MIIT, transferred by the entity to any other third party. In accordance with a joint circular from the NDRC and the MOF, CMCC has entered into an agreement with us that specifies the amount of fees to be paid to the MIIT for spectrum usage by each mobile network operator based on the bandwidth of the frequency used.
Since July 2017, spectrum usage fees were no longer charged based on different generations of telecommunications but on the particular frequency bands used. Meanwhile, the NDRC and the MOF adjusted the fees charged for each frequency band. The annual rate for frequency band below 960 MHz was reduced from RMB17 million to RMB16 million per MHz while the annual rate for 960 MHz to 2,300 MHz frequency bands was reduced from RMB15 million to RMB14 million per MHz. Additionally, the annual rate for frequency bands above 2,300 MHz was adjusted from RMB12 million to RMB8 million per MHz.
 
 
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Our network expansion and optimization plans depend to a large extent upon the availability of sufficient spectrum. In December 2018, the MIIT granted CMCC, our parent company, a permit to use the frequency bands of 2515MHz-2675MHz and 4800MHz-4900MHz for the trial of its 5G system in the mainland of China. We currently provide 5G services on these frequency bands. As directed by the MIIT, China Telecom and China Unicom have ceased to use certain frequency bands that overlap with those allocated to CMCC for its 5G system. For our GSM network, the MIIT has allocated to CMCC a total of 40x2 MHz of spectrum in the 900 MHz and 1,800 MHz frequency bands to be used nationwide for transmission and reception. In connection with our 3G business, the MIIT has allocated to CMCC, in various frequency bands, a total of 30 MHz of spectrum to be used for nationwide coverage. In connection with our 4G business, CMCC has been approved by MIIT to refarm the frequency bands initially allocated to 2G and 3G services to 4G services. Under the existing agreement between CMCC and us, we have the right to use CMCC’s allocated frequency spectrum in the mainland of China.
Transmission Infrastructure.
The physical infrastructure linking our network components and interconnecting our networks to other networks consists of transmissions lines, which provide the backbone infrastructure through which voice and data traffic is carried. We have directed efforts to establishing high-speed backbone transmission network and improving its overall transmission capabilities. As of December 31, 2021, the bandwidth of our backbone network has expanded by over 25% as compared to December 31, 2020.
Leased Lines.
The MIIT determines the standard lease tariffs to be paid by telecommunications operators with respect to the leasing of transmission lines that facilitate interconnection between telecommunications networks.
Transmission lines constructed by us reached a sizeable scale through the continuous optimization of our network structure in recent years. In addition to our own transmission lines, we also lease intra-provincial and local transmission lines from other operators and pay them fees based on tariff schedules stipulated by the relevant regulatory authorities after adjusting for the discounts that we have negotiated. For the inter-provincial transmission lines we lease through CMCC from other providers, CMCC collects leasing fees from us and pays fees to the relevant transmission line providers.
Base Stations.
In 2021, we focused on constructing 5G base stations. As of December 31, 2021, we had over 730,000 5G base stations, and the total number of our stations was about 5.50 million. We also promoted the collaboration with China Broadcasting in relation to 5G
co-construction
and sharing, to build a shared and efficient network linking the base stations.
Equipment Suppliers
.
We select our principal suppliers from leading international and domestic manufacturers of mobile equipment and in accordance with technical standards set by the MIIT. In 2021, we purchased our networks equipment primarily from Huawei Technologies, ZTE Corporation, FiberHome, Ericsson and Nokia.
Fixed-Line Networks
We operate fixed-line networks which provide extensive coverage in China. These networks are technologically advanced and conducive to the introduction of the next generation fixed-line networks. These networks support a wide range of
end-to-end
fixed-line telecommunications services and enable customized products to be delivered to meet a variety of telecommunications needs.
Our fixed-line networks consist of broadband Internet and data networks, transmission networks, value-added service platforms, information technology support systems and related infrastructures. Our transmission networks consist primarily of fiber-optic based networks, which cover our major service regions, supplemented by satellite transmission and digital microwave links.
 
5G
Co-construction
and Sharing Agreements
In May 2020, we announced that CMCC, our parent company, entered into a collaborative framework agreement in relation to 5G
co-construction
and sharing (the “5G Collaborative Framework Agreement”) with China Broadcasting. Pursuant to the 5G Collaborative Framework Agreement, CMC, our wholly-owned subsidiary, on behalf of its 31 provincial subsidiaries, entered into four specific collaboration agreements with China Broadcasting on January 26, 2021. The duration of collaboration under all four specific collaboration agreements shall be from the date of entering into the agreements to December 31, 2031, divided into the Phase One Collaboration Period and the Phase Two Collaboration Period. The Phase One Collaboration Period refers to the period from the date of entering into the agreements to December 31, 2021 and the Phase Two Collaboration Period refers to the period from January 1, 2022 to December 31, 2031. On September 10, 2021, CMC, on behalf of its 31 provincial subsidiaries and CMCC, entered into the 5G Network
Co-construction
and Sharing Supplemental Agreement (the “Supplemental Agreement”) with China Broadcasting. The terms of the four specific collaboration agreements and the Supplemental Agreement are summarized as follows.
 
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5G Network
Co-Construction
and Sharing Collaboration Agreement
The parties shall jointly construct the 700MHz Wireless Network, whereas CMC shall share with China Broadcasting on a paid basis the 2.6GHz Network.
The parties shall jointly invest in the establishment, expansion of capacity as well as upgrade and renovation of the 700MHz wireless network at a ratio of 1:1. The parties shall enjoy ownership in the 700MHz wireless network (including but not limited to base stations, antennas and essential wireless ancillary equipment) as an indivisible integral asset at a ratio of 1:1. The parties shall both have the right to fully use the 700MHz wireless network to provide services to their respective customers.
CMC shall provide to China Broadcasting for use on a paid basis a transmission carrier network linking between 5G base stations with a frequency of 700MHz and China Broadcasting’s connection points in prefecture-level cities or provincial centers. The wireless networks of 700MHz and 2.6GHz shall adopt the same shared technical solutions.
5G Network Maintenance Collaboration Agreement
The parties shall possess equal network management rights in respect of the 700MHz wireless network. CMC shall undertake the operation and maintenance work of the 700MHz wireless network, whereas China Broadcasting shall pay to CMC operation and maintenance fees for the 700MHz wireless network.
CMC shall be responsible for the maintenance work of the 700MHz transmission carrier network for use by China Broadcasting on a paid basis. The 700MHz wireless network shall be dual-connected to the respective core networks of the parties, which shall undertake the network maintenance work of their respective self-owned core networks.
The network maintenance work for the 700MHz wireless network and the 700MHz transmission carrier network undertaken by CMC includes areas such as malfunction handling, complaint handling, communication safeguarding, cutover upgrade, wireless optimization and base station inspection.
Market Collaboration Agreement
The market collaboration between the parties shall follow the principle of independence in terms of branding and business operations. During the Phase One Collaboration Period, China Broadcasting may share CMC’s 2G/4G/5G networks on a paid basis to provide services to China Broadcasting’s customers. During the Phase Two Collaboration Period, China Broadcasting may share CMC’s 2.6GHz network on a paid basis to provide services to China Broadcasting’s customers. After the large-scale commercialization of the 700MHz wireless network, China Broadcasting shall, in respect of its new customers, in principle no longer share and use CMC’s 2G/4G networks.
Apart from the aforesaid business collaboration in terms of network sharing, the parties shall also strengthen their collaboration in areas such as product design, market operations, customer service, content, as well as national and industry standards formulation.
Network Usage Fee Settlement Agreement
China Broadcasting shall pay to CMC network usage fees, including operation and maintenance fees for the 700MHz wireless network, usage fees for the 700MHz transmission carrier network, and usage fees for the 2G/4G/5G networks.
During the Phase One Collaboration Period, the operation and maintenance fees for the 700MHz wireless network and usage fees for the 700MHz transmission carrier network payable by China Broadcasting to CMC shall begin to accrue in the second month after the 5G base stations with a frequency of 700MHz are connected to China Broadcasting’s core network or China Broadcasting’s designated transmission nodes and shall be charged according to the actual number of base stations.
 
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During the Phase One Collaboration Period, China Broadcasting shall settle with CMC the usage fees for the 2G/4G/5G networks according to the actual network business volume of China Broadcasting’s customers in their use of CMC’s 2G/4G/5G networks.
During the first five years of the Phase Two Collaboration Period, China Broadcasting shall pay to CMC network usage fees, including operation and maintenance fees for the 700MHz wireless network, usage fees for the 700MHz transmission carrier network, and usage fees for the 2.6GHz network, at the rates negotiated by the parties.
In 2026, the parties shall negotiate and determine in an amicable manner the settlement matters for the second five years of the Phase Two Collaboration Period according to the operation and collaboration conditions during the first five years of the Phase Two Collaboration Period.
Supplemental Agreement
The parties shall
co-construct
and share 700MHz wireless network based on all 700MHz frequency bands of the radio spectrum in respect of which China Broadcasting had been permitted to use by relevant national departments. CMC shall initially bear all construction costs of the 700MHz wireless network within the agreed scope under the Supplemental Agreement and shall initially own the assets underlying the said wireless network. Both parties have the right to use the 700MHz wireless network. Subject to compliance with applicable laws, regulations and regulatory requirements, China Broadcasting under appropriate conditions may purchase 50% of the 700MHz equipment and assets such as wireless base stations and antennas from CMC at the then assessed market fair value. Without consent from the other party, any party may not dispose of (including transfer, mortgage or pledge) its ownership in all or any 700MHz wireless network assets within the scope of collaboration.
China Broadcasting shall pay CMC network usage fees on terms as agreed between the parties based on fair and reasonable negotiations.
Save for terms and contents expressly agreed in the Supplemental Agreement, there is no change to other terms and contents of the 5G Collaborative Framework Agreement and the four specific collaboration agreements.
Investments and Acquisitions
As of December 31, 2021, Guangdong Mobile, our wholly-owned subsidiary, held an 18.18% equity interest in the issued share capital of SPD Bank. SPD Bank is a joint-stock commercial bank incorporated in the PRC, with its shares listed on the Shanghai Stock Exchange. We and SPD Bank entered into a strategic cooperation agreement in November 2010, pursuant to which we and SPD Bank cooperate in the areas of internet finance and mobile payment businesses in the mainland of China, as well as in the sharing of customer services and channels resources. In January 2016, we renewed our strategic cooperation with SPD Bank and developed an
“and-Finance”
system to provide SPD Bank and our customers with payment, wealth management and financing services. In October 2019, we subscribed for RMB9,085.3 million (approximately US$1,305.0 million) in a convertible bond issued by SPD Bank. As of the date of this report, we have not exercised our conversion right under this convertible bond.
In August 2012, CMC, our wholly-owned subsidiary, entered into a share subscription agreement with IFLYTEK, pursuant to which CMC would subscribe for 15% of the shares of IFLYTEK for an aggregate subscription price of RMB1,363,314,339 (approximately US$218,827,040). The share subscription was completed on April 24, 2013. Concurrent with the share subscription, we and IFLYTEK entered into a strategic cooperation agreement and, in December 2015, renewed the agreement to cooperate in various areas, including smart voice businesses, content-based businesses, customer services, basic telecommunications businesses and informatization of the telecommunications industry and other areas upon the parties’ written agreement. As of December 31, 2021, CMC held approximately 10.66% equity interest in IFLYTEK.
In June 2014, China Mobile International Holdings Limited, or CMI, our wholly-owned subsidiary, entered into a share subscription agreement with True Corporation, a major national telecommunications provider in Thailand, pursuant to which CMI agreed to subscribe to ordinary shares of True Corporation representing, following the completion of the subscription, 18% of the total issued and outstanding shares of True Corporation, for a total consideration of Baht 28.57 billion (approximately RMB5.51 billion). The subscription was completed in September 2014. Also in June 2014, we entered into a cooperation memorandum, and, in September 2014, we entered into a strategic cooperation agreement with True Corporation to explore business cooperation opportunities in various areas, including products or value-added services or contents, international businesses, network, device procurement, general procurement and human resources. In June 2016, CMI subscribed for certain newly issued ordinary shares which were allocated to it in proportion to its shareholding percentage for a total consideration of Baht 10.8 billion (approximately RMB2.0 billion) during the capital increase of True Corporation. As of December 31, 2021, CMI held an 18.00% equity interest in True Corporation.
 
 
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In May 2015, CMC, our wholly-owned subsidiary, entered into a partnership agreement with State Development & Investment Corp., Ltd., and China Mobile Fund Management Co., Ltd., to establish China Mobile Fund to make investments in companies with growth potential which are engaged in the mobile Internet and related upstream and downstream businesses. Pursuant to such partnership agreement, CMC made a capital commitment of RMB1,500 million (approximately US$231.6 million) and became a limited partner of China Mobile Fund. As of December 31, 2021, CMC had contributed RMB1,256 million to China Mobile Fund and had a commitment to make further investment in an amount of RMB244 million upon the request by China Mobile Fund.
In November 2015, CM Tietong, our wholly-owned subsidiary, acquired Target Assets and Businesses of China Tietong, for a final consideration of RMB31,967 million (approximately US$4,934.9 million). Target Assets and Businesses acquired include approximately 99,000 cable kilometers of nationwide backbone networks, approximately 1,822,000 cable kilometers of metro fiber, approximately 24.71 million IPv4 addresses, 1,814 real properties and 685 land assets, approximately 11.98 million customers of fixed broadband services, and approximately 18.29 million customers for wireline services. The acquisition was completed in December 2015. Because we and Target Assets and Businesses were under common control of CMCC both prior to and after the acquisition, the acquisition was considered as a business combination under common control and was accounted for using merger accounting in accordance with AG 5 issued by the HKICPA. Target Assets and Businesses were stated at their historical cost, and were included in the consolidated financial statements included in this annual report on Form
20-F
as if Target Assets and Businesses had always been part of our company during all the periods presented. In 2021, partially due to the benefit from the integration and synergy brought by CM Tietong, our wireline broadband services experienced a rapid growth in both revenue and market share. See “—Businesses.” We expect that our acquisition of Target Assets and Businesses will further facilitate our transformation into a full-service operator offering both wireline broadband and mobile services, enable us to seize the opportunities in the wireline broadband market, expand our customer base, offer an integrated services consisting of the fixed-line and the mobile services, and increase our wireline broadband network capacity, coverage and efficiency through an integrated network.
In November 2017, CMI Holdings, our wholly-owned subsidiary, entered into an agreement, pursuant to which it acquired an 11.43% equity interest in ChannelSoft, a software service provider, for a total consideration of RMB400 million (approximately US$61 million). Following our equity investment, ChannelSoft began working with our provincial operating subsidiaries in call center infrastructure and big data-driven precision marketing.
In July 2018, CMI, our wholly-owned subsidiary, participated in Xiaomi’s initial public offering as a cornerstone investor and subscribed for 46,164,600 shares, representing 0.2% of Xiaomi’s issued and outstanding share capital upon the completion of the offering, for a total consideration of HK$784.8 million. In July 2018, we entered into a strategic cooperation framework agreement with Xiaomi to explore new opportunities to collaborate, including in joint marketing, sales channel transformation, smart hardware, government and corporate businesses, overseas businesses, and industrial investment. As of December 31, 2021, CMI held a 0.15% equity interest in Xiaomi.
In 2019, we made several strategic investments in addition to the subscription for the convertible bond issued by SPD Bank, including (i) the subscription and acquisition by CMI Holdings, our wholly-owned subsidiary, of 12.0% equity interest in Beijing Haitian Ruisheng Science Technology Co., Ltd., at a total consideration of RMB234.7 million, to cooperate in human-annotated datasets for machine learning and artificial intelligence, (ii) the acquisition by CMI Holdings of 0.7% equity interest in Beijing Kingsoft Office Software, Inc., at a consideration of RMB147.5 million, to jointly develop SAAS products, (iii) the subscription by China Mobile Group Fujian Co., Ltd., our wholly-owned subsidiary, of 45% equity interest in Fujian Heyi Health Technology Development Co., Ltd., at a consideration of RMB22.5 million, to jointly develop intelligent senior care platforms and (iv) the subscription by China Mobile Group Xinjiang Co., Ltd., our wholly-owned subsidiary, of 16.0% equity interest in Xinjiang Digital Corps Information Industry Development Co., Ltd., at a consideration of RMB16.0 million, to explore digitalization across various industries in Xinjiang. As of December 31, 2021, China Mobile Group Xinjiang Co., Ltd. no longer held equity interest in Xinjiang Digital Corps Information Industry Development Co., Ltd.
 
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In 2020, our strategic investments include (i) the subscription by CMI of 182,259,893 shares newly issued by AsiaInfo Technologies Limited, a provider of telecommunications software and related services listed on the Hong Kong Stock Exchange (stock code: 1675), at a total consideration of HK$1,385.2 million, (ii) the acquisition by CMI Holdings of 0.72% equity interest in Huaqin Technology Co., Ltd., a company principally engaged in the original design and manufacturing of intelligent communication terminals, (iii) the acquisition by China Mobile Group Henan Co., Ltd., our wholly-owned subsidiary, of 30% equity interest in Zhengshu Network Technology Co., Ltd. at a total consideration of RMB300.0 million, (iv) the acquisition by China Mobile FinTech of 50% equity interest in Haida Insurance Brokerage Co., Limited at a total consideration of RMB55.4 million and (v) the acquisition by China Mobile Group Zhejiang Co., Ltd., our wholly-owned subsidiary, of 24% equity interest in Zhejiang
New-type
Internet Exchange Point Co., Ltd. at a total consideration of RMB24.0 million.
In 2021, our strategic investments include (i) the acquisition by MIGU Co., Ltd., our wholly-owned subsidiary, of 16.74% equity interest in Beijing Haiyu Dongxiang Technology Co., Ltd., a cloud computing service provider focusing on live interactions, at a total consideration of RMB180.0 million, (ii) the acquisition by China Mobile Group Guangdong Co., Ltd., our wholly-owned subsidiary, of 18.0% equity interest in Shenzhen Qianhai
New-type
Internet Exchange Point Co., Ltd., at a total consideration of RMB18.0 million, (iii) the acquisition by China Mobile Group Ningxia Co., Ltd., our wholly-owned subsidiary, of 23.0% equity interest in Ningxia Zhongwei New Internet Exchange Center Co., Ltd., at a total consideration of RMB23.0 million, (iv) the acquisition by China Mobile Group Heilongjiang Co., Ltd., our wholly-owned subsidiary, of 10.0% equity interest in Harbin Energy Innovate Science & Technology Co., Ltd., at a total consideration of RMB10.0 million, (v) the acquisition by MIGU Co., Ltd. of 17.50% equity interest in Huanyu Trust (Beijing) Technology Co., Ltd., at a total consideration of RMB7.0 million, (vi) the acquisition by CMI of 2.01% equity interest in Zhongji Innolight Co., Ltd., a manufacturer of optical modules listed on the Shenzhen Stock Exchange (stock code: 300308.SZ), at a total consideration of RMB499.0 million, (vii) the acquisition by CMI and China Mobile IoT Company Limited, our wholly-owned subsidiary, of 5.0% equity interest each in Nanjing Chuangxin Huilian Technology Co., Ltd., at a consideration of RMB29.0 million for each of the 5.0% equity interest, (viii) the subscription by China Mobile Xiong’an ICT Co., Ltd., our wholly-owned subsidiary, of 49.0% equity interest in Xintong Digital Intelligence Quantum Technology Co., Ltd., at a total consideration of RMB24.5 million.
Competition
We compete with other market players in the telecommunications and related industries.
We are one of the four licensed telecommunications services providers in the mainland of China. The PRC government encourages orderly and fair competition in the telecommunications industry in the mainland of China. We face intense competition from existing operators from time to time. Our competitors launch, from time to time, promotional offers to attract customers.
In the area of basic telecommunications services, the PRC government allows operators approved by the MIIT to lease and repackage mobile services for sale to end-customers and we face increasing competition from these new mobile network operators. In light of our recent permission to provide 4G services based on LTE FDD technology, we expect that the competition will intensify in the delivery of 4G services against China Telecom and China Unicom, which operate their 4G services based mainly on LTE FDD technology for several years. Further, in January 2016, China Telecom and China Unicom entered into a strategic cooperation agreement to promote resource-sharing between the two companies. The areas of strategic cooperation include sharing capital expenditures such as their new rural 4G network, promoting a new smartphone standard, and jointly negotiating international roaming rates. Moreover, China Telecom collaborated with CUCL, a wholly-owned subsidiary of China Unicom, in 2019 to roll out 5G network
co-building
and
co-sharing,
which enables them to leverage on their mutually complementary network and spectrum resources to save costs on network construction, operation and maintenance. Additionally, the PRC government has required the implementation of mobile number portability programs in the mainland of China by the end of 2019. As a result, the competition among telecommunication operators may be further intensified.
Moreover, on June 6, 2019, the MIIT granted the basic telecommunications service operating permit for 5G digital cellular mobile service to CMCC, our parent company, China Broadcasting Network and the parent companies of China Telecom and China Unicom, which is expected to intensify the competition among the four telecommunications services providers with respect to the planning and promotion of 5G development and commercialization. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—We may encounter difficulties and challenges in the commercialization of 5G technologies.”
 
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We also face a variety of competition from competitors in related industries, generally Internet service providers and technology companies. They compete against us in telecommunications business by offering mobile Internet access and Over The Top services, such as instant messaging, VoIP services, or audio or video content services delivered over the Internet. As we diversify our offerings to become a full-service provider, we also compete with them in emerging business, including home digital services, mobile payment, IoT, smart home services, streaming media and
on-demand
video and other digital content business.
See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—The increasing competition from other telecommunications services providers and competitors in related industries and changes in the competitive landscape of the telecommunications industry in the mainland of China may reduce our market share and decrease our profit margin” and “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could adversely affect our competitiveness or enhance competition in the telecommunications industry.”
Regulation
The telecommunications industry in the mainland of China is highly regulated. See “Item 3. Key Information—Risk Factors—Risks Relating to the Telecommunications Industry in the mainland of China—We are subject to extensive government regulation and any change in the regulatory environment in the PRC, especially with respect to the telecommunications industry, may materially impact us.” for a description of the effects government regulations may have on our business. Regulations issued or implemented by the State Council, the MIIT and other relevant government authorities, including the NDRC and, the Ministry of Commerce, or MOFCOM, encompass all key aspects of telecommunications network operations, including entry into the telecommunications industry, scope of permissible business, interconnection and transmission line arrangements, technology and equipment standards, tariff standards, capital investment priorities, foreign investment policies and spectrum and numbering resources allocation.
The MIIT, under the supervision of the State Council, is responsible for formulating policies and regulations for the telecommunications industry, granting telecommunications licenses, allocating frequency spectrum and numbers, formulating interconnection and settlement arrangements between telecommunications operators, and enforcing industry regulations.
In order to provide a uniform regulatory framework to encourage the orderly development of the telecommunications industry, the MIIT, under the direction of the State Council, has been preparing a draft telecommunications law. We expect that, if and when the telecommunications law is adopted by the National People’s Congress, it will become the basic telecommunications statute and the legal source of telecommunications regulations in the mainland of China. In addition, the State Council promulgated a set of telecommunications regulations on September 25, 2000. These regulations apply in the interim period prior to the adoption of the telecommunications law. Although we expect that the telecommunications law will have a positive effect on the overall development of the telecommunications industry in the mainland of China, we cannot predict what will be the ultimate nature and scope of the telecommunications law.
On December 25, 2015, the MIIT issued the Catalog of Telecommunications Services (2015 Edition), which became effective on March 1, 2016. It sets out classifications of various telecommunications services for regulatory and licensing purposes.
Entry into the Industry.
Under the current regulations, operators of mobile networks, providers of other basic telecommunications services such as local and long-distance fixed-line telephone services, and data service providers whose telecommunications services cover two or more provinces, directly-administered municipalities or autonomous regions in the mainland of China must apply for specific permits from the MIIT in order to provide such services. Granting of permits for providing basic telecommunications services will be through a tendering process. In addition to us, China Telecom and China Unicom are currently also authorized to provide mobile services in all provinces, directly-administered municipalities and autonomous regions in China.
 
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Pursuant to China’s commitments under the World Trade Organization and the Provisions on the Administration of Foreign-Funded Telecommunications Enterprises, which became effective on January 1, 2002, foreign investors may invest in joint ventures that provide telecommunications services in the mainland of China. However, these investments will presumably bear no direct relation to the issuance of licenses to providers of telecommunications services in the mainland of China, as the issuance of new licenses by the relevant authority is governed by a separate set of rules and regulations. Pursuant to the Provisions on the Administration of Foreign-Funded Telecommunications Enterprises, as amended in February 2016, foreign ownership in a telecommunications enterprise may be gradually increased to 49% if such enterprise provides basic telecommunications services and 50% if such enterprise provides value-added telecommunications services.
The MIIT has promulgated the Administrative Measures for the Licensing of Telecommunication Business Operations, which became effective on September 1, 2017. Those regulations apply to the application for, approval of, use and management of telecommunications business licenses in the PRC.
The PRC government implemented a number of measures that permit certain operators approved by the MIIT to lease telecommunications infrastructure and repackage mobile services for sale to end-customers. On May 17, 2013, the MIIT announced that it would accept applications from
non-State-owned
companies to, on a trial basis, lease mobile services from China Telecom, China Unicom or us and provide mobile services to end-customers after repackaging these services. The trial period ended on December 31, 2015. On January 24, 2018, the MIIT released a notice for public comment regarding the conversion of pilot license to an official license for the mobile services leasing and repackaging. On May 5, 2016, the MIIT officially issued a telecom license to China Broadcasting Network, making it the nation’s fourth telecommunications operator. In 2016, the MIIT also approved certain operators to refarm their respective frequency spectrum used for 2G and 3G services to provide 4G services. Since May 1, 2018, subject to MIIT’s approval,
non-state-owned
companies, state-owned companies and foreign invested enterprises are allowed to lease mobile services from China Telecom, China Unicom or us and provide mobile services to
end-customers
after repackaging these services.
Numbering Resources.
The MIIT is responsible for the administration of the telecommunications numbering resources within the mainland of China, including the telecommunications network numbers and customer numbers. The use of numbering resources by any telecommunications operator is subject to the approval by the MIIT. In addition, a user of numbering resources is required to pay a usage fee to the PRC government by the 10
th
day of the first month of each quarter. Moreover, under the applicable regulations, mobile companies are required to pay an annual usage fee of RMB6 million for each network number.
Technical Standards.
Certain regulatory authorities in the mainland of China, including the MIIT, set technical standards and control the type, quality, manufacturing and sales of mobile equipment used in or connected to public networks, all radio telecommunications equipment and all interconnection related equipment.
The establishment of base stations requires the approval of the relevant provincial regulatory authorities. We have not experienced and do not expect to experience material difficulty in obtaining permission to establish additional sites.
Capital Investment.
We may be required to obtain approvals from relevant regulatory authorities in the mainland of China with respect to some of our investment projects.
Sharing of Telecommunications Infrastructure.
In June 2018, the MIIT and the State-owned Assets Supervision and Administration Commission of the State Council jointly issued the 2018 Implementation Opinions on Promoting the Joint Construction and Sharing of Telecommunications Infrastructure, or the Opinions. First, the Opinions continued the implementation of the joint construction and sharing of telecommunications infrastructure and required that the supporting facilities for base stations, such as the telecommunications towers, and the indoor distribution systems for public transportation and buildings, shall generally be uniformly planned, constructed and delivered by China Tower, with the exception that certain facilities may be constructed by a telecommunications operator if serving only such operators’ demand. The Opinions also provided requirements for joint construction and sharing of broadband access network, transmission poles and pipelines. In particular, for new transmission poles and pipelines, joint construction is mandatory if condition permits, and for existing transmission poles, pipelines, base station areas and access network of base stations and international fibers, sharing should be strictly implemented. Moreover, the Opinions attached significant importance to the construction safety in connection with telecommunications infrastructure and set up relevant principles.
 
 
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Convergence of Telecom, Broadcasting and Internet Businesses.
In January 2010, the PRC government announced a policy decision, or the Three-Network-Convergence Policy, to accelerate the advancement of the convergence of television and radio broadcasting, telecommunications and Internet access businesses in order to realize interconnection and resource-sharing between the three networks and further develop the provision of voice, data, television and other services. The PRC government may amend the relevant regulations or promulgate new regulations in order to implement the Three-Network Convergence Policy. In September 2012, we received an audio and video transmission license from the former State Administration of Radio, Film and Television of the PRC, or SARFT, which enables us to provide audio and video programs through broadband Internet and mobile Internet. In June 2018, we were granted by the SARFT an Internet protocol television transmission license, which allows us to carry out Internet protocol television business.
Value-added Tax Reform Applicable to the Telecommunications Industry.
Effective from June 1, 2014, the PRC business tax was replaced with a value-added tax, or VAT, in the telecommunications industry. The pilot tax rates for basic telecommunications services, value-added telecommunications services and sales of products and others were 11%, 6% and 17%, respectively. According to Cai Shui [2018] No.32, the VAT at the rate of 11% applicable to our basic telecommunications services was reduced to 10%, and the VAT at the rate of 17% applicable to our sales of products and others was reduced to 16%, which came into effect on May 1, 2018. On March 20, 2019, the MOF, the State Taxation Administration, and the General Administration of Customs issued Announcement [2019] No. 39, which reduced the VAT rate applicable to our basic telecommunications services from 10% to 9% and the VAT rate applicable to our sales of products and others from 16% to 13% as well as promulgated supporting policies regarding input tax on real estate, input tax on domestic passenger transport services, VAT credits and tax refund to deepen such VAT tax reform. Announcement [2019] No. 39 came into effect on April 1, 2019.
Our output VAT is excluded from operating revenue while our input VAT, which is incurred as a result of our receipt of services and purchases of telecommunications equipment and materials, is excluded from operating expenses or the original cost of equipment purchased and can be netted against our output VAT, arriving at the net amount of VAT recoverable or payable. As the VAT obligations are borne by our branches and subsidiaries, input and output VAT are set off at branches and subsidiaries levels, and the net amount of VAT recoverable or payable of branches and subsidiaries are not offset at the consolidation level. Such net amount of VAT is recorded in the line item of prepayments and other current assets and accrued expenses and other payables, respectively on the face of consolidated balance sheets.
Cyber Security and Personal Privacy Protection.
We are subject to the Cyber Security Law, which came into effect on June 1, 2017. The Cyber Security Law sets forth an overarching framework regulating the network products, equipment, and services, as well as the operation and maintenance of information networks, protection of personal information, and supervision and administration of cyber security in the mainland of China. According to the Cyber Security Law, the Cyberspace Administration of China, or the CAC, has a central role in planning, coordination, supervision, and management of network security measures while the MIIT, the Ministry of Public Security and other relevant authorities are in charge of network security protection, supervision and management within the scope of their respective responsibilities. In furtherance of the Cyber Security Law, the PRC government published “Cybersecurity Review Measures” on April 13, 2020. The Cybersecurity Review Measures provides for the scope and procedures of cybersecurity review and its latest amendment came into effect on February 15, 2022. In addition, the PRC government also published “Guiding Opinions on Implementation the Multi-Level Protection System for Network Security and Critical Information Infrastructure Security Protection System” in September 2020, requiring critical information infrastructure operators to carry out security construction and evaluation in accordance with multi-level network security protection standards, and “Security Protection Regulations on the Critical Information Infrastructure” in July 2021, providing guidance on the compliance obligations and penalties imposed on the critical information infrastructure operators.
In addition to the protection of cyber security, the Chinese government has also implemented laws relating to the protection of personal privacy and data security. The Data Security Law of the PRC, which came into effect on September 1, 2021, requires entities and individuals carrying out data activities in China to establish and improve their data security systems and implement necessary technologies and measures to safeguard data security. It also sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations. The Personal Information Protection Law of the PRC, which came into effect on November 1, 2021, includes the basic rules for personal information processing, rules for cross-border provision of personal information, obligations of personal information processors, and legal responsibilities for illegal collection, processing and use of personal information.
 
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The regulatory framework governing the collection, processing, storage and use of business information and personal data is rapidly evolving. Although we expect that the evolvement of laws on cyber security and personal privacy protection will have a positive effect on the overall development of the telecommunications industry and enhance information protection in the mainland of China, we currently cannot predict the scope of any specific requirements that may be imposed on us and their implications for our operations.
E-Commerce
Law.
Effective from January 1, 2019, the
E-Commerce
Law of the PRC, or the
E-Commerce
Law, stipulates requirements in connection with the registration and licensing of
e-commerce
operators, taxation, electronic payment and
e-commerce
dispute resolution. It also addresses other important aspects of
e-commerce,
such as false advertising, consumer protection, data protection and cybersecurity, as well as the protection of intellectual property. The
E-Commerce
Law defines
e-commerce
operators as natural and legal persons that engage in the business of selling merchandise and/or providing services on the internet or other information networks and covers
e-commerce
platform operators, vendors of goods and services on the
e-commerce
platforms of others, and those who operate their self-built websites or through other network services. The
E-Commerce
Law provides that where
e-commerce
platform operators know, or should know, that goods or services provided on the platform do not comply with requirements for personal or property security, or otherwise violate the lawful rights and interests of consumers, and they do not take necessary measures such as deleting, blocking links or stopping transactions, they will be jointly and severally liable with the online vendor.
Market Regulation.
The principal regulations governing the market in China include the PRC Anti-Unfair Competition Law, which was promulgated in September 1993 and amended in November 2017, and the PRC Anti-Monopoly Law, which took effect in August 2008. The PRC Anti-Unfair Competition Law imposes stringent requirements on various promotional activities, such as
prize-giving
sales and bundling sales. Pursuant to the PRC Anti-Monopoly Law, monopolistic conduct, including entering into monopoly agreements, abuse of dominant market position and concentration of undertakings that have the effect of eliminating or restricting competition, is prohibited. Sanctions for violation of the prohibition on monopoly agreements and the abuse of dominant market position include an order to cease the relevant activities, confiscation of illegal gains and fines, while for failure of declaration prior to concentration, the antitrust authority is empowered to terminate and/or unwind the transaction, dispose of relevant assets, shares or businesses and impose fines.
Employees
As of December 31, 2019, 2020 and 2021, we had 456,239, 454,332 and 449,934 employees, respectively. Substantially all of our employees are located in the mainland of China. The employees as of December 31, 2021 are classified in the following table. Approximately 76.9% of our permanent employees have college or graduate degrees. Set forth below is a breakdown of our employees by function as of December 31, 2021:
 
    
Number
    
% of Total
 
Management
     31,581        7.0  
Technical
     156,896        34.9  
Marketing
     212,377        47.2  
General affairs
     44,918        10.0  
Other
     4,162        0.9  
    
 
 
    
 
 
 
Total
     449,934     
 
100.0
 
    
 
 
    
 
 
 
We provide benefits to certain employees, including housing, retirement benefits and hospital, maternity, disability and dependent medical care benefits. See note 6 to our consolidated financial statements included in this annual report on Form
20-F
for details of our employee benefit and related expenses, including contributions to defined contribution retirement plans. Most of our employees are members of a labor union. We have not experienced any strikes or labor disputes that have interfered with our operations during 2021. We believe we have built a harmonious relationship with our employees.
The number of labor sourced by third parties was 28,382 by the end of 2021.
 
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Property, Plants and Equipment
We own, lease or have usage rights in various properties which consist of land and buildings for offices, administrative centers, staff quarters, retail outlets and technical facilities in the mainland of China and Hong Kong. We believe that all of our owned and leased properties are well maintained and are suitable and adequate for our present use.
Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) of the Exchange Act requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by
non-U.S.
affiliates in compliance with applicable
non-U.S.
law, and whether or not the activities are sanctionable under U.S. law.
As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates in 2021 that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below.
CMCC, our parent company, is a party to international GSM roaming agreements with Telecommunication Kish Company and Mobile Company of Iran in Iran, which may be government-controlled entities. China Mobile International, one of our wholly-owned subsidiaries, is a party to international roaming agreements with Irancell Telecommunications Services Company and Mobile Company of Iran in Iran, which may be government-controlled entities. CMCC is also a party to international GSM roaming agreements with Syriatel Mobile Telecom S.A. and MTN Syria (formerly Spacetel Syria) in Syria. As part of our ordinary telecommunications services, these international roaming agreements allow our mobile customers to use their mobile devices on a network outside their home network.
In 2021, our gross revenue generated by roaming traffic under these agreements was less than US$500,000.
China Mobile International intends to, and we understand that CMCC intends to, continue these activities in the future.
 
Item 4A.
Unresolved Staff Comments.
Not applicable.
 
Item 5.
Operating and Financial Review and Prospects.
You should read the following discussion and analysis in conjunction with our consolidated financial statements, together with the related notes, included elsewhere in this annual report on Form
20-F.
We publish our consolidated financial statements in Renminbi. Solely for the convenience of the reader, this annual report on
Form 20-F contains
translations of certain Renminbi and Hong Kong dollar amounts into U.S. dollars and vice versa at RMB6.3726 = US$1.00 and HK$7.7996 = US$1.00, the noon buying rates in New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York on December 30, 2021. The noon buying rates in New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York are published on a weekly basis in the H.10 statistical release of the Board of Governors of the Federal Reserve System of the United States. These translations should not be construed as representations that the Renminbi or Hong Kong dollar amounts could actually be converted into U.S. dollars at such rates or at all.
Financial Highlights
Our operating revenue reached RMB848,258 million (US$133,110 million) in 2021, of which, revenue from our telecommunications services amounted to RMB751,409 million. Our revenue structure further improved in 2021. Revenue from wireless data traffic reached RMB392,859 million (US$61,648 million) in 2021, which remained our largest revenue source. Our profit attributable to equity shareholders reached RMB116,148 million (US$18,226 million) in 2021, or basic earnings per share of RMB5.67. The total dividend payment for 2021 reached HK$4.06 per share.
Overview of Our Operations
The following table sets forth selected information about our operations for the periods indicated.
 
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Year ended December 31,
 
    
2019
    
2020
    
2021
 
Total voice usage (in billions of minutes)
     3,224.8        3,032.4        2,996.9  
Handset data traffic (in billions of gigabytes)
     65.89        90.66        124.84  
Operating revenue (in RMB millions)
     745,917        768,070        848,258  
Operating expenses (in RMB millions)
     632,768        655,336        730,295  
Profit attributable to equity shareholders (in RMB millions)
     106,641        107,843        116,148  
There was an increase of 15 million in the number of our mobile customers in 2021 and our total mobile customer base was 957 million as of December 31, 2021. Our total voice usage decreased by 6.0% in 2020 and further decreased by 1.2% in 2021. Our handset data traffic increased by 37.6% in 2020 and further by 37.7% in 2021. Our operating revenue increased by 3.0% in 2020 and increased by 10.4% in 2021. Our operating expenses increased by 3.6% in 2020 and increased by 11.4% in 2021. Our profit attributable to equity shareholders increased by 1.1% in 2020 and increased by 7.7% in 2021.
The PRC economy continued to grow in terms of GDP by 8.1% in 2021, which provided a favorable environment for our continued business development. However, we faced various challenges arising from increased market saturation and intensified competition among mobile operators and from providers offering telecommunications services using alternative technologies, in particular Internet service providers. As the mobile penetration rate in the mainland of China reached 116.3% as of December 31, 2021, the mobile markets in some economically developed regions of the mainland of China have showed signs of saturation. We intend to continue to cope with market and industry challenges that may arise from time to time by leveraging our customer base, network quality, brand name, execution capabilities and quality of our customer service. Moreover, economic growth in the PRC and its modernization and urbanization offer an opportunity and platform for the ongoing development of the telecommunications industry, in particular the development of mobile Internet. Such development presents potential opportunities for us to further develop our wireless data traffic business and applications and information services.
We operate in an extensively regulated environment and our operations and financial performance are significantly affected by the PRC government’s regulation of the telecommunications industry. These regulations and policies may affect, among other things, our tariffs, technology and equipment standards and capital investment, as described in more detail under “Item 4. Information on the Company—Business Overview—Regulation” and “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our tariff reduction and future policy developments in the telecommunications industry in relation to tariff reduction may continue to adversely affect our financial conditions.” In addition, we believe that the effects of the industry restructuring that took place in 2008, increasing competition from telecommunications services providers that use alternative technologies and entry of
non-State-owned
telecommunications services providers into the telecommunications services market have had, and will continue to have, a significant impact on the competitive landscape of the telecommunications industry in the mainland of China. We expect competition from other telecommunications services providers may intensify. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—The increasing competition from other telecommunications services providers and competitors in related industries and changes in the competitive landscape of the telecommunications industry in the mainland of China may reduce our market share and decrease our profit margin,” “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Changes in the technologies and business models of the telecommunications industry may render our current technologies and business model obsolete, and we may encounter difficulties and challenges in developing and implementing new technologies and services” and “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could adversely affect our competitiveness or enhance competition in the telecommunications industry.” Our financial performance is also subject to the economic and social conditions in the mainland of China. See “Item 3. Key Information—Risk Factors—Risks Relating to the mainland of China—An economic slowdown in the mainland of China may reduce the demand for our services and have a material adverse effect on our business, financial condition, results of operations and prospects.”
 
-44-

Our Operating Arrangements with CMCC Have Affected and May Continue to Affect Our Financial Results
We have entered into agreements with CMCC with respect to, among other things, inter-provincial transmission lines leasing. Pursuant to these agreements, for the inter-provincial transmission lines we lease from other providers through CMCC, CMCC maintains its inter-provincial transmission line leasing arrangements with the relevant transmission line providers, and collects leasing fees from us and pays fees to the relevant transmission line providers.
On September 13, 2012, we entered into an agreement with CMCC, pursuant to which CMCC would gradually transfer its settlement arrangements with certain telecommunications services providers in foreign countries and regions to China Mobile International, our wholly-owned subsidiary. As a result, our arrangement with CMCC with respect to international interconnection and roaming with certain telecommunications services providers is being gradually phased out.
We have also entered into a telecommunications services cooperation agreement with CMCC, pursuant to which we and CMCC provide customer development services to each other by utilizing our respective sales channels and resources, and cooperate in the provision of basic telecommunications services and value-added telecommunications services to customers of each other.
Since 2013, we have paid the leasing fees to CMCC for the “Village Connect” assets constructed before 2013 and undertaken the investments on any new “Village Connect” assets after 2013. On August 9, 2019, certain of our provincial subsidiaries entered into assets transfer agreements with the relevant provincial subsidiaries of CMCC to acquire certain “Village Connect” assets.
We have also entered into a network capacity leasing agreement with CMCC, pursuant to which we and our operating subsidiaries lease
TD-SCDMA
network capacity from CMCC and pay leasing fees to CMCC. We have also entered into a network assets leasing agreement with CMCC, pursuant to which we and CMCC will lease our respective telecommunications network operation assets to each other for a leasing fee. In addition, we have entered into a telecommunication facilities construction services agreement with CMCC, pursuant to which we provide certain telecommunications services to CMCC and its subsidiaries.
The total volume of transactions under the foregoing operating arrangements with CMCC increased in 2021, and these arrangements may continue to affect our future financial results. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” for further information about these arrangements.
Tariff Adjustments
The tariffs charged by PRC telecommunications operators are regulated by the PRC government. Moreover, we are allowed to offer our customers a variety of tariff packages with different monthly charges, levels of basic usage and charges for usage exceeding the covered basic usage, voice value-added services, wireless data traffic services and other features. See “Item 4. Information on the Company—Business Overview—Tariffs.”
Our average voice services revenue per minute has generally decreased in recent years as tariffs have generally decreased.
Average Revenue Per User
Our average revenue per mobile user per month increased by 3.0% from RMB47.4 in 2020 to RMB48.8 in 2021 driven by the expansion of 5G network coverage, the increase of our 5G customers, and the development of various 5G applications, while the same decreased by 3.5% from 2019 to 2020. Our average revenue per wireline broadband user per month increased to RMB34.7 in 2021 from RMB34.0 in 2020 as a result of upgrades in our gigabit-speed broadband network.
Critical Accounting Policies and Estimates
The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with IFRSs for the years ended December 31, 2019, 2020 and 2021. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and revenues and expenses during the years reported. Estimates are also used when accounting for certain items such as revenue recognition, interest income, impairment loss on accounts receivable, depreciation, impairment of property, plant and equipment, investments accounted for using the equity method, goodwill,
right-of-use
assets and other intangible assets. Actual results may differ from those estimates under different assumptions or conditions.
 
-45-

We believe that the following critical accounting estimates and related assumptions and uncertainties inherent in our accounting policies have a more significant impact on our consolidated financial statements, either because of the significance of the financial statement elements to which they relate or because they require judgment and estimation.
Revenue Recognition from Contracts with Customers
The Group mainly provides voice, data and other telecommunications services to its customers through entering into contracts that are either cancellable on monthly basis or for a fixed contract period generally with prepayment term and/or penalty for early termination. The Group also sells telecommunication-related products to its customers.
For the telecommunications services, telecommunication related products and/or other services/products provided by the Group, if the customer can benefit from the services or products and the Group’s promise to transfer the services or products is separately identifiable, the Group identifies them as separate performance obligations. Revenue is measured at the transaction price which is the amount of consideration to which the Group is entitled in exchange for transferring promised performance obligations to the customer excluding amounts collected on behalf of third parties. The amount of consideration is generally explicitly stated in the contract and does not include significant financing component.
When control of a service or product is transferred to a customer, revenue is generally recognized in profit or loss as follows:
 
  (i)
Revenue for each performance obligation is recognized when the Group satisfies the performance obligation by transferring the promised services or products to the customer. Generally, revenue is recognized when the customer obtains the control of the telecommunications services over the time of provision of the services. Revenue is recognized when a customer obtains the control of the product at a point of time.
 
  (ii)
For contracts which include the provision of multiple performance obligations including services and products, the Group allocates the transaction price to each performance obligation based on the relative stand-alone selling price. The stand-alone selling price of services and products are mainly based on its observable selling price. If a stand-alone selling price is not directly observable, the Group considers all information that is reasonably available and maximizes the use of observable inputs to estimate the stand-alone selling price. Revenue for each performance obligation is then recognized when the control of the promised services or products is transferred to the customer.
 
  (iii)
The Group usually controls the services and the products it provided before they are transferred to the customer. In certain situations, the Group would consider the primary responsibilities in the arrangement, the establishment of selling price, and the inventory risks, etc. to determine if the Group is acting as a principal or agent. If the Group has assessed and concluded that it does not obtain the control of a specified product before transferring to the customer, the Group is acting as agent in satisfying a performance obligation, and the revenue is recognized in the net amount of any fee or commission to which it expects to be entitled from another party.
Contract assets primarily relate to the Group’s rights to consideration for services or products provided to the customers but for which the Group does not have an unconditional right at the balance sheet date. The contract asset is reclassified to accounts receivable as services are provided and billed. Contract liabilities arise when the Group receives consideration in advance of providing the services or products promised in the contract. Contract liabilities mainly comprise
non-refundable
prepaid service fees received from customers, unredeemed point rewards under customer point reward program and unused data traffic carried over. The refundable prepaid service fees received from customers is recorded as
receipts-in-advance.
Contract costs include costs incurred to obtain a contract and cost incurred to fulfil a contract. Costs incurred to obtain a contract represents incremental costs incurred to obtain a contract, which mainly comprise sales commissions payable to third party agents and are amortized on a systemic basis that is consistent with the transfer to the customer of the services or products to which such costs relates over the expected duration of the contract and recorded in selling expense, if it is expected to be recovered. When the expected amortization period is one year or less, the Group utilizes the practical expedient and expenses the costs as incurred. Capitalized incremental costs incurred to obtain a contract is recorded as other
non-current
assets.
 
-46-

Cost incurred to fulfill a contract represents the cost directly related to the Group’s telecommunications service contracts which are not within the scope of another accounting standard. The amount is amortized on a systemic basis that is consistent with the transfer to the customer of the services or products to which the costs incurred to fulfill a customer contract relates over the expected duration of the contract and recorded as network operation and support expenses, if it is expected to be recovered. Capitalized cost incurred to fulfill a contract is recorded as inventory or other
non-current
assets based on its amortization period.
Interest Income
Interest income is recognized as it accrues using the effective interest method.
Impairment Loss for Accounts Receivable
The impairment loss allowance of accounts receivable is based on assumptions about risk of default and expected loss rates. We assess these assumptions and selects the inputs to the impairment calculation, based on historical credit losses, macroeconomic factors as well as expected changes in these factors at each balance sheet date.
Depreciation
Depreciation is calculated to write off the cost of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. We review the estimated useful lives and residual values of our assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives and residual values are determined based on our historical experience with similar assets and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates. Estimates and assumptions used in setting depreciable lives require both judgment and estimation. Our policies regarding accounting for these assets are set forth in note 2(g) to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
Impairment of Property, Plant and Equipment, Goodwill,
Right-of-use
Assets, Other Intangible Assets and Investments Accounted for Using the Equity Method
Our property, plant and equipment, goodwill,
right-of-use
assets, other intangible assets and investments accounted for using the equity method comprise a significant portion of our total assets. Changes in technology or industry conditions may cause the value of these assets to change. Property, plant and equipment,
right-of-use
assets, other intangible assets subject to amortization and investments accounted for using the equity method are reviewed at least annually to determine whether there is any indication of impairment. The recoverable amount is estimated whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. In addition, for goodwill and other intangible assets with indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.
The recoverable amount of an asset is the greater of its fair value less costs of disposal and its
value-in-use.
In assessing
value-in-use,
the estimated future cash flows are discounted to their present value using a
pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The calculation of the estimated future cash flow requires significant judgment relating to level of revenue and amount of operating costs. We use all readily available information in determining an amount that is a reasonable estimation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in further impairment charge or reversal of impairment in future periods. Additional information for the impairment assessment of goodwill and investments accounted for using the equity method is set forth in notes 18 and 20, respectively, to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
Estimates and assumptions used in testing for recoverability require both judgment and estimation. Our policies regarding accounting for these assets and assessing their recoverability are set forth in note 2(j) to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
 
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Lease
We applied IFRS 16 from its mandatory adoption date of January 1, 2019. Other than land use right, we primarily lease telecommunications towers, buildings and premises and other network equipment. Lease contracts are typically made for fixed periods with no extension options.
Lease liabilities are initially measured at the present value of unpaid lease payments at the commencement date. Lease payments include fixed payments, variable lease payments that are based on an index or a rate, residual value guarantees payments, lease payments to be made under reasonably certain extension options and payments of penalties for exercising an option to terminate the lease. As the interest rate implicit in the lease cannot be readily determined, we use incremental borrowing rate as the discounted rate for calculating the present value of lease payments. When determining the incremental borrowing rate, we make adjustments on risk-free interest rate based on lease term and credit risk for leases, as we do not have recent third party loan financing. Lease payments are allocated between principal and finance cost. We calculate interest on the lease liability based on a constant periodic rate, which is charged to profit or loss as finance cost over the lease period.
Our
right-of-use
assets are measured at cost, which include the amount of the initial measurement of lease liabilities, any lease payments made at or before the commencement date, initial direct costs and restoration costs, etc.
Right-of-use
assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Possible Impact of Amendments, New Standards, Interpretations and Disclosures Issued but Not Yet Effective or Mandatory for the Year Ended December 31, 2021
Up to the date of issue of our consolidated financial statements for the year ended December 31, 2021, the IASB has issued a number of amendments and new standards which are not yet effective or mandatory for the year ended December 31, 2021 and which have not been adopted by us.
Of these developments, the following relate to matters that may be relevant to our operations and consolidated financial statements:
 
    
Effective for
    
accounting periods
    
beginning on or after
   
Amendments to IFRS 3, “Business Combinations” – Reference to the
    Conceptual Framework
   January 1, 2022
   
Amendments to IAS 16, “Property, Plant and Equipment” – Property, Plant
    and Equipment: Proceeds Before Intended Use
   January 1, 2022
   
Amendments to IAS 37, “Provisions, Contingent Liabilities and Contingent
    Assets” – Onerous Contracts – Cost of Fulfilling a Contract
   January 1, 2022
   
Annual Improvements to IFRS Standards 2018-2020 Cycle    January 1, 2022
   
IFRS 17 and Amendments to IFRS 17, “Insurance Contracts”    January 1, 2023
   
Amendments to IAS 1, “Presentation of Financial Statements” –
    Classification of Liabilities as Current or
Non-Current
   January 1, 2023
   
Amendments to IAS 1, “Presentation of Financial Statements” and IFRS
    Practice Statement 2, “Making Materiality Judgements” – Disclosure of
    Accounting Policies
   January 1, 2023
   
Amendments to IAS 8, “Accounting Policies, Changes in Accounting
    Estimates and Errors” – Definition of Accounting Estimates
   January 1, 2023
   
Amendments to IAS 12, “Income Taxes” – Deferred Tax Related to Assets
    and Liabilities Arising from a Single Transaction
   January 1, 2023
   
Amendments to IFRS 10, “Consolidated Financial Statements” and IAS 28,
    “Investments in Associates and Joint Ventures” – Sale or Contribution of
    Assets Between an Investor and Its Associate or Joint Venture
   To be determined
 
-48-

As a result of the new IFRS standards, the Company might be required to change its accounting policies, to alter its operational policies so that they reflect new financial reporting standards, or to restate its published consolidated financial statements. Such changes may have an adverse effect on the Company’s business, financial position and profit, or could cause an adverse deviation between the Company’s revenue and operating result targets.
Results of Operations
The following table sets forth selected consolidated statements of comprehensive income data for the years indicated:
 
-49-

    
Year Ended December 31,
 
    
2019
    
2020
    
2021
 
    
Amount
   
% of
Total
    
Amount
   
% of
Total
    
Amount
   
% of
Total
 
    
(in millions of RMB, except percentage data)
 
Operating revenue
(1)
:
              
Revenue from telecommunications services
     674,392       90.4        695,692       90.6        751,409       88.6  
Revenue from sales of products and others
     71,525       9.6        72,378       9.4        96,849       11.4  
  
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
Total
     745,917       100.0        768,070       100.0        848,258       100.0  
  
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
Operating expenses:
              
Network operation and support expenses
     175,810       27.8        206,424       31.5        225,010       30.8  
Depreciation and amortization
     182,818       28.9        172,401       26.3        193,045       26.4  
Employee benefit and related expenses
     102,518       16.2        106,429       16.2        118,680       16.3  
Selling expenses
     52,813       8.3        49,943       7.6        48,243       6.6  
Cost of products sold
     72,565       11.5        73,100       11.2        96,083       13.2  
Other operating expenses
     46,244       7.3        47,039       7.2        49,234       6.7  
  
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
Total
     632,768       100.0        655,336       100.0        730,295       100.0  
  
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
Profit from operations
     113,149          112,734          117,963    
Other gains
     4,029          5,602          8,257    
Interest and other income
     15,560          14,341          16,729    
Finance costs
     (3,246        (2,996        (2,679  
Income from investments accounted for using the equity method
     12,641          12,678          11,914    
  
 
 
      
 
 
      
 
 
   
Profit before taxation
     142,133          142,359          152,184    
Taxation
     (35,342        (34,219        (35,878  
  
 
 
      
 
 
      
 
 
   
Profit for the year
     106,791          108,140          116,306    
  
 
 
      
 
 
      
 
 
   
Attributable to:
              
Equity shareholders
     106,641       99.9        107,843       99.7        116,148       99.9  
Non-controlling
interests
     150       0.1        297       0.3        158       0.1  
  
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
Profit for the year
     106,791       100.0        108,140       100.0        116,306       100.0  
  
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
 
(1)
Our operating revenue components are revenue from telecommunications services and revenue from sales of products and others. Revenue from telecommunications services consists of revenue from voice services, SMS and MMS, wireless data traffic, wireline broadband, applications and information services, and other telecommunications services. Revenue from sales of products and others is mainly derived from sales of handsets, smart devices and ICT equipment as well as revenue from construction contracts.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Operating Revenue.
Our operating revenue components are revenue from telecommunications services and revenue from sales of products and others. Revenue from telecommunications services primarily consists of revenue from voice services, SMS and MMS, wireless data traffic, wireline broadband, applications and information services, and other telecommunication services. Voice services revenue mainly includes standard local usage fees for airtime and applicable domestic and international long-distance charges receivable from customers for the use of our telecommunications networks and facilities, fees in respect of roaming out calls made by our customers outside their registered service areas and fees charged for voice value-added services. Other revenue from telecommunications services largely represents interconnection revenue. Revenue from sales of products and others is mainly derived from sales of handsets, smart devices and ICT equipment, as well as revenue from construction contracts. See note 1 to the table above.
In 2021, we further promoted scale-based and value-oriented operations, advanced the
all-round
and integrated development of our CHBN business and achieved solid growth in revenue. Operating revenue increased from RMB768,070 million in 2020 to RMB848,258 million (US$133,110 million) in 2021, representing a
year-on-year
increase of 10.4%.
 
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Revenue from telecommunications services grew from RMB695,692 million in 2020 to RMB751,409 million (US$117,912 million) in 2021, representing a
year-on-year
increase of 8.0%. This increase was mainly due to (i) our initiatives in accelerating business transformation and upgrade which led to substantial increase of revenue from application and information services, and (ii) the improved quality and coverage of our high-speed broadband services which resulted in the rapid growth of revenue from wireline broadband.
Set forth below is a table summarizing certain results of our telecommunications services for the periods indicated.
 
    
Year Ended December 31,
    
Increase
(Decrease)
    
Change
 
    
2020
    
2021
 
    
(Revenue, in millions of RMB, except percentage data)
    
(%)
 
Voice services
     78,782        76,163        (2,619      (3.3 %) 
SMS and MMS
     29,485        31,100        1,615        5.5
Wireless data traffic
     385,679        392,859        7,180        1.9
Wireline broadband
     80,808        94,230        13,422        16.6
Applications and information services
     101,038        136,961        35,923        35.6
Other telecommunication services
     19,900        20,096        196        1.0
  
 
 
    
 
 
    
 
 
    
Telecommunications services revenue
     695,692        751,409        55,717        8.0
  
 
 
    
 
 
    
 
 
    
Telecommunications services revenue as a percentage of operating revenue
     90.6        88.6        (2.0      —    
Due to the substitution effect of mobile Internet and other factors, revenue from voice services decreased from RMB78,782 million in 2020 to RMB76,163 million (US$11,952 million) in 2021, representing a
year-on-year
decrease of 3.3%. Revenue generated from SMS and MMS increased by 5.5% from RMB29,485 million in 2020 to RMB31,100 million (US$4,880 million) in 2021. Revenue from wireless data traffic increased by 1.9% from RMB385,679 million in 2020 to RMB392,859 million (US$61,648 million) in 2021. Revenue generated from wireline broadband business grew by 16.6% from RMB80,808 million in 2020 to RMB94,230 million (US$14,787 million) in 2021. Revenue generated from applications and information services increased by 35.6% from RMB101,038 million in 2020 to RMB136,961 million (US$21,492 million) in 2021.
Revenue from sales of products and others increased by 33.8% from RMB72,378 million in 2020 to RMB96,849 million (US$15,198 million) in 2021, primarily due to an increase in the revenue from sales of handsets, ICT equipment and other smart devices.
Operating Expenses.
Operating expenses increased by 11.4% from RMB655,336 million in 2020 to RMB730,295 million (US$114,599 million) in 2021. Among the operating expenses:
Network operation and support expenses increased by 9.0% from RMB206,424 million in 2020 to RMB225,010 million (US$35,309 million) in 2021. As a percentage of operating expenses, network operation and support expenses decreased from 31.5% in 2020 to 30.8% in 2021. The increase in our network operation and support expenses in 2021 was primarily due to accelerated construction and commencement of operation of our new information infrastructure and increased investments to support business transformation. For more information on our network operation and support expenses, see note 5 to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
Depreciation and amortization expenses increased by 12.0% from RMB172,401 million in 2020 to RMB193,045 million (US$30,293 million) in 2021. As a percentage of operating expenses, depreciation and amortization expenses increased from 26.3% in 2020 to 26.4% in 2021. The increase in our depreciation and amortization expenses in 2021 was primarily due to (i) the increased scale of assets due to accelerated network upgrades and business transformation and (ii) increased annual depreciation of fixed assets as we adjusted the residual value rate of certain assets to nil.
Employee benefit and related expenses increased by 11.5% from RMB106,429 million in 2020 to RMB118,680 million (US$18,623 million) in 2021, primarily as a result of enhanced incentives to attract talents in corporate business, emerging markets and research and development in the field of 5G, artificial intelligence, IoT, cloud computing, big data and edge computing. As a percentage of operating expenses, employee benefit and related expenses remained stable at 16.3% in 2021, compared to 16.2% in 2020.
 
-51-

Selling expenses decreased by 3.4% from RMB49,943 million in 2020 to RMB48,243 million (US$7,570 million) in 2021. This decrease was principally because we enhanced our online sales capabilities benefitting from the acceleration of our channel transformation. As a percentage of operating expenses, selling expenses decreased from 7.6% in 2020 to 6.6% in 2021.
Cost of products sold increased by 31.4% from RMB73,100 million in 2020 to RMB96,083 million (US$15,078 million) in 2021. This increase was primarily driven by the significant increase in the revenue from sales of products over the same period. As a percentage of operating expenses, cost of products sold increased from 11.2% in 2020 to 13.2% in 2021.
Other operating expenses increased by 4.7% from RMB47,039 million in 2020 to RMB49,234 million (US$7,726 million) in 2021. The increase was mainly due to our increased investment in R&D. As a percentage of operating expenses, other operating expenses decreased from 7.2% in 2020 to 6.7% in 2021. For more information on our other operating expenses, see note 7 to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
Profit from Operations.
As a result of the foregoing, profit from operations increased by 4.6% from RMB112,734 million in 2020 to RMB117,963 million (US$18,511 million) in 2021, and operating margin (profit from operations as a percentage of operating revenue) decreased from 14.7% in 2020 to 13.9% in 2021.
Other Gains.
Other gains increased by 47.4% from RMB5,602 million in 2020 to RMB8,257 million (US$1,296 million) in 2021, principally due to the additional deduction of input VAT and others.
Interest and Other Income.
Interest and other income increased from RMB14,341 million in 2020 to RMB16,729 million (US$2,625 million) in 2021. The increase was mainly due to an increase in net gains on hold/disposal of financial assets.
Finance Costs.
Finance costs decreased from RMB2,996 million in 2020 to RMB2,679 million (US$420 million) in 2021. This decrease was mainly due to a decrease in interest costs associated with lease liabilities.
Income from Investments Accounted for Using the Equity Method.
We had income from investments accounted for using the equity method of RMB11,914 million (US$1,870 million) in 2021, a decrease by 6.0% from RMB12,678 million in 2020. The decrease was primarily attributable to our shareholding in SPD Bank. For more information on our income from investments accounted for using the equity method, see note 20(a) to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
Profit before Taxation.
As a result of the foregoing, profit before taxation increased by 6.9% from RMB142,359 million in 2020 to RMB152,184 million (US$23,881 million) in 2021.
Taxation.
Our income tax expense increased by 4.8% from RMB34,219 million in 2020 to RMB35,878 million (US$5,630 million) in 2021. Our effective tax rate was 24.0% in 2020 and 23.6%
in 2021. The decrease in our effective tax rate was primarily due to some of our subsidiaries were entitled to a preferential rate of enterprise income tax.
Profit Attributable to Equity Shareholders.
As a result of the foregoing and after taking into account
non-controlling
interests, profit attributable to equity shareholders increased by 7.7% from RMB107,843 million in 2020 to RMB116,148 million (US$18,226 million) in 2021. Net profit margin (profit attributable to equity shareholders as a percentage of operating revenue) decreased from 14.0% in 2020 to 13.7% in 2021.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
For a discussion of our results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019, please see “Item 5. Operating and Financial Review and Prospects—Results of Operations—Year Ended December 31, 2020 Compared to Year Ended December 31, 2019” of our annual report on Form
20-F
for the year ended December 31, 2020.
 
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Liquidity and Capital Resources
Liquidity
Our principal source of liquidity is cash generated from our operations. As of December 31, 2021, we had working capital (current assets minus current liabilities) of RMB13,223 million (US$2,075 million), compared to working capital of RMB62,469 million as of December 31, 2020 and working capital of RMB67,799 million as of December 31, 2019. The decrease in our working capital as of December 31, 2021 from December 31, 2020 was primarily due to an increase in our accrued expenses and other payables, partially offset by an increase in cash and cash equivalents.
Bank deposits represent term deposits with banks with original maturity exceeding three months. As of December 31, 2021, we had bank deposits of RMB89,049 million (US$13,974 million), compared to bank deposits of RMB110,382 million as of December 31, 2020 and bank deposits of RMB130,799 million as of December 31, 2019. For further information about our financial instruments, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk” and note 22 to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
The following table summarizes certain cash flow information for the periods indicated.
 
    
Years ended December 31,
 
    
2019
    
2020
    
2021
 
    
(in millions of RMB)
 
Net cash generated from operating activities
     247,591        307,761        314,764  
Net cash used in investing activities
     (64,206      (188,106      (238,296
Net cash used in financing activities
     (64,901      (82,252      (45,201
    
 
 
    
 
 
    
 
 
 
Net increase in cash and cash equivalents
     118,484        37,403        31,267  
    
 
 
    
 
 
    
 
 
 
Net cash generated from operating activities increased by 2.3% from RMB307,761 million in 2020 to RMB314,764 million (US$49,393 million) in 2021, primarily because we accelerated the collection of receivables.
Net cash used in investing activities increased by 26.7% from RMB188,106 million in 2020 to RMB238,296 million (US$37,394 million) in 2021, which was primarily due to an increase in capital expenditure and financial assets purchased by us.
Net cash used in financing activities decreased by 45.0% from RMB82,252 million in 2020 to RMB45,201 million (US$7,093 million) in 2021, primarily due to the subscription funds received from issuance of RMB Shares.
For a discussion of our cash flow information for the year ended December 31, 2020 compared to the year ended December 31, 2019, please see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Liquidity” of our annual report on Form
20-F
for the year ended December 31, 2020.
Material Cash Requirements
Our material cash requirements as of December 31, 2021 and any subsequent interim period primarily comprise of contractual obligations, capital commitments and capital expenditure. As of December 31, 2021, we did not have any borrowings.
In the ordinary course of our business, we routinely enter into commercial commitments for various aspects of our operations, such as network maintenance and support. However, we believe that those commitments will not have a material effect on our financial condition, results of operations or cash flows. For further disclosure regarding our capital commitments, please see note 41 to our consolidated financial statements included elsewhere in this annual report on Form
20-F.
The following table sets forth certain information regarding our contractual obligations to make future payments (including relevant estimated interest payment) as of December 31, 2021:
 
 
    
Payments Due by Period
 
Contractual Obligations
  
Total
    
Less than
1 year
    
1 – 3
years
    
3 – 5
years
    
More than
5 years
 
    
(in millions of RMB)
 
Accounts Payable
     152,712        152,712        —          —          —    
Bills Payable
     12,747        12,747        —          —          —    
Accrued Expenses and Other Payables
     264,545        264,545        —          —          —    
Amount Due to Ultimate Holding Company
     23,478        23,478        —          —          —    
Lease Liabilities
     61,776        26,519        19,875        8,552        6,830  
Other
non-current
liabilities
     425        —          78        75        272  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     515,683        480,001        19,953        8,627        7,102  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
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The following table sets forth certain information regarding our other commercial commitments as of December 31, 2021:
 
    
Amount of Commitment
Expiration Per Period
 
Other Commercial Commitments
  
Total
Amount
Committed
    
Less than
1 year
    
1 – 3
years
    
3 – 5
years
    
More than
5 years
 
    
(in millions of RMB)
 
Capital Commitments
     33,559        26,168        7,391        —          —    
Apart from the commitments listed above, as of December 31, 2021, we had a commitment to invest RMB244 million in China Mobile Fund upon its request.
Historically, our capital expenditures incurred were RMB165.9 billion, RMB180.6 billion and RMB183.6 billion (US$28.8 billion) in 2019, 2020 and 2021,
respectively. We incurred capital expenditures in 2021 principally to build a high-quality 5G network, enhance the deployment of cloud resources, promote cloud-based network transformation, build up transmission capability and boost IT support. We estimate that our capital expenditure in 2022 will be approximately RMB185.2 billion (US$29.1 billion). Our capital expenditure, which is expected to be principally incurred in the mainland of China, will serve a variety of purposes, including the construction of our premium 5G network, our integrated computing force network and industry-leading smart
mid-end
platform, and support for the
all-rounded
development of CHBN business.
We have generally funded our capital requirements primarily with cash generated from operations. We believe our available cash and cash equivalents and cash generated from future operations will be sufficient to fund our operating activities, capital expenditures and other obligations for at least the next twelve months.
We may seek to obtain additional sources of financing to fund our network expansion and possible future acquisitions, to the extent necessary.
Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company—Business Overview—Research and Development.”
Trend Information
See our discussion in each section of “—Overview of Our Operations” and “—Results of Operations” included elsewhere under this Item.
Critical Accounting Estimates
Not Applicable.
Foreign Exchange
We maintain our accounts in Renminbi and substantially all of our revenue and expenses are denominated in Renminbi. Most of our current operating subsidiaries are incorporated in the mainland of China. Under the current foreign exchange system in the mainland of China, our subsidiaries in the mainland of China may not be able to hedge effectively against currency risk, including any possible future Renminbi devaluation. See “Item 3. Key Information—Risk Factors—Risks Relating to the mainland of China—Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows” and “Item 10. Additional Information—Exchange Controls” for further information about exchange controls in the mainland of China. We expect our foreign currency hedging activity to be generally limited to the hedging of specific future commitments in foreign currencies.
Each of our operating subsidiaries in the mainland of China is able to purchase foreign exchange for settlement of current account transactions, as defined in applicable regulations, in order to satisfy its foreign exchange requirements.
 
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Item 6.
Directors, Senior Management and Employees.
Directors and Senior Management
The following table sets forth certain information concerning our directors and senior management as of April 28, 2022.
 
Name
  
Age
  
Position
Mr. YANG Jie    59    Executive Director and Chairman
Mr. DONG Xin    56    Executive Director and Chief Executive Officer
Mr. LI Ronghua    56    Executive Director and Chief Financial Officer
Dr. Moses M.C. CHENG    72    Independent
Non-Executive
Director
Mr. Paul M.Y. CHOW    75    Independent
Non-Executive
Director
Mr. Stephen K.W. YIU    61    Independent
Non-Executive
Director
Dr. YANG Qiang    60    Independent
Non-Executive
Director
Mr. LI Huidi    53    Vice President
Mr. GAO Tongqing    58    Vice President
Mr. JIAN Qin    56    Vice President
Mr. ZHAO Dachun    51    Vice President
Mr. YANG Jie has served as our Executive Director and Chairman since March 2019. He is in charge of our overall management. Mr. Yang is also the Chairman of CMCC and a director and the Chairman of CMC. Mr. Yang previously served as a Deputy Director General of Shanxi Posts and Telecommunications Administration, a General Manager of Shanxi Telecommunications Corporation, a Vice President of China Telecom Beijing Research Institute, a General Manager of the Business Department of the Northern Telecom of China Telecommunications Corporation, Vice President, President and Chairman of China Telecommunications Corporation, and the President, Chief Operating Officer, Chairman and Chief Executive Officer of China Telecom Corporation Limited. Mr. Yang graduated from the Beijing University of Posts and Telecommunications majoring in radio engineering in 1984 and obtained a doctorate degree in business administration from the ESC Rennes School of Business in 2008. Mr. Yang is a professor-level senior engineer with extensive experience in management and the information and communication technology industry.
Mr. DONG Xin has served as our Executive Director since March 2017 and our Chief Executive Officer since August 2020. He is in charge of the operation of the Company. Mr. Dong is also a Director and President of CMCC and a Director and President of CMC. Mr. Dong formerly served as a Deputy Director of Corporate Finance Division of Finance Department of the former Ministry of Posts and Telecommunications, a Director of Economic Adjustment Division of the Department of Economic Adjustment and Communication Clearing of the former Ministry of Information Industry of China, Director General of the Finance Department of CMCC, Chairman and President of China Mobile Group Hainan Company Limited, China Mobile Group Henan Company Limited and China Mobile Group Beijing Company Limited, Vice President and Chief Accountant of CMCC, Vice President and Chief Financial Officer of our Company and a
non-executive
director of China Tower. Mr. Dong received a Bachelor’s degree from Beijing University of Posts and Telecommunications in 1989, a Master’s degree in financial and accounting management from Australian National University, and a doctoral degree in business administration jointly issued by Shanghai Jiao Tong University and ESC Rennes School of Business, France. Mr. Dong is a senior engineer and senior accountant with many years of experience in the operation and management of the information and communication technology industry and in financial management.
Mr. LI Ronghua has served as our Executive Director and Chief Financial Officer since October 2020. He is principally in charge of finance, internal audit and investor relations of the Company. Mr. Li is also the Chief Accountant of CMCC and a director and Vice President of CMC. Mr. Li formerly served as Vice Manager and Manager of Finance and Assets Department of State Grid Corporation of China, Deputy General Accountant of State Grid Corporation of China, Director and Chairman of State Grid Overseas Investment Limited (Hong Kong), Chairman of State Grid Yingda International Holdings Group Ltd. Between December 2019 and September 2020, Mr. Li served as the head of the preparatory team of and Director and Chairman of State Grid Yingda Co., Ltd. (listed in Shanghai). Mr. Li received a Bachelor’s degree in Accounting from Zhongnan University of Economics in 1998, and an Executive Master of Business Administration degree from Wuhan University in 2004.
 
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Dr. Moses M.C. CHENG has served as our Independent
Non-Executive
Director since March 2003. He was appointed the chairman of the remuneration committee in May 2016. Dr. Cheng is a practicing solicitor and a consultant of Messrs. P.C. Woo & Co. after serving as its senior partner from 1994 to 2015. Dr. Cheng was a member of the Legislative Council of Hong Kong and chairman of Hong Kong Insurance Authority. He is the founder chairman of the Hong Kong Institute of Directors of which he is now the Honorary President and Chairman Emeritus. Dr. Cheng currently holds directorships in Liu Chong Hing Investment Limited, China Resources Beer (Holdings) Company Limited, Towngas Smart Energy Company Limited (formerly known as Towngas China Company Limited), K. Wah International Holdings Limited, Guangdong Investment Limited, Tian An China Investments Company Limited and The Hong Kong and China Gas Company Limited, all of which are public companies in Hong Kong. Dr. Cheng has ceased to be a
non-executive
director of Kader Holdings Company Limited.
Mr. Paul M.Y. CHOW has served as our Independent
Non-Executive
Director since May 2013. He was appointed the chairman of the nomination committee in May 2016. Mr. Chow was the Chief Executive of the Asia Pacific Region
(ex-Japan)
of HSBC Asset Management (Hong Kong) Limited from 1997 to 2003, an executive director and Chief Executive of Hong Kong Exchanges and Clearing Limited from April 2003 to January 2010, the chairman of Hong Kong Cyberport Management Company Limited from June 2010 to May 2016, an independent
non-executive
director of Bank of China Limited from October 2010 to August 2016, a member of the Advisory Committee on Innovation and Technology of the Government of the Hong Kong Special Administrative Region from April 2015 to March 2017, an independent
non-executive
director of CITIC Limited from March 2016 to June 2019 and an independent
non-executive
director of Julius Baer Group Ltd. and Bank Julius Baer & Co. Ltd. from April 2015 to May 2020.
Mr. Stephen K.W. YIU has served as our Independent
Non-Executive
Director since March 2017. He was appointed the chairman of the audit committee in May 2018. Mr. Yiu is currently the chairman of Hong Kong Insurance Authority, a director of Hong Kong Finance Academy, an independent
non-executive
director of Hong Kong Exchanges and Clearing Limited and ANTA Sports Products Limited, a Council member and Treasurer of The Hong Kong University of Science and Technology and a member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority and the Complaints Committee of the Hong Kong Independent Commission Against Corruption. Mr. Yiu joined the global accounting firm KPMG in Hong Kong in 1983 and was seconded to KPMG in London, the United Kingdom from 1987 to 1989. Mr. Yiu became a partner of KPMG in 1994, served as the partner in charge of audit of KPMG from 2007 to 2010, and served as the chairman and Chief Executive Officer of KPMG China and Hong Kong as well as a member of the Executive Committee and the Board of KPMG International and KPMG Asia Pacific from April 2011 to March 2015. Mr. Yiu formerly also served as a member of the Audit Profession Reform Advisory Committee and the Mainland Affairs Committee of the HKICPA. Mr. Yiu is a fellow member of the Association of Chartered Certified Accountants, the HKICPA and the Institute of Chartered Accountants of England and Wales. Mr. Yiu received a professional diploma in accountancy from The Hong Kong Polytechnic (now known as The Hong Kong Polytechnic University) in 1983, and holds a Master’s degree in business administration from the University of Warwick in the United Kingdom.
Dr. YANG Qiang has served as our Independent
Non-Executive
Director since May 2018. Dr. Yang is currently the Chief AI Officer of WeBank Co., Ltd., the Chair Professor and the former Head of the Department of Computer Science and Engineering of the Hong Kong University of Science and Technology (HKUST), as well as the
Co-founder
and a
non-executive
director of Shenzhen Qianhai 4Paradigm Data Technology Co., Ltd. (now known as Beijing Fourth Paradigm Technology Co., Ltd.), Dr. Yang had served as, among other posts, an Assistant Professor and a Tenured Associate Professor at the Department of Computer Science of the University of Waterloo in Canada from September 1989 to August 1995, a Tenured Associate Professor, an Industrial Research Chair and a Full Professor at the School of Computing Science of Simon Fraser University in Canada from August 1995 to August 2001, and an Associate Professor, a Full Professor and an Associate Head of the Department of Computer Science and Engineering of HKUST from August 2001 to June 2012. From 2012 to November 2014, Dr.Yang was also the Founding Head of Huawei’s Noah’s Ark Research Lab. He was the President of International Joint Conference on Artificial Intelligence (IJCAI) from 2017 to 2019 and an executive committee member of the Association for the Advancement of Artificial Intelligence (AAAI) from 2016 to 2019. He was the AAAI Conference Chair in 2021. Dr. Yang is a Fellow of several international professional societies, including AAAI, Association for Computing Machinery (ACM) and Institute of Electrical and Electronic Engineering (IEEE). Dr. Yang received a bachelor’s degree in astrophysics from Peking University in 1982, master’s degrees in astrophysics and computer science from the University of Maryland, College Park in the United States in 1985 and 1987, respectively, and a doctor’s degree in computer science from the University of Maryland, College Park in 1989.
 
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Mr. LI Huidi has served as our Vice President since September 2019. Mr. Li is principally in charge of planning and construction, network, information harbor, information security, procurement and others. Mr. Li is also a Vice President and the Chief Cyber Security Officer of CMCC and a director and vice president of CMC. Previously, Mr. Li served as a research fellow in Lucent Technologies—Bell Labs Innovations, a vice president of UTStarcom Inc., a vice president and General Manager of New Mobile Technology and
High-end
Products Division of Lenovo Group Limited, Chief Technology Officer and Chairman of Technology Innovation Committee of Lenovo Mobile Communication Technology Co., Ltd. Mr. Li graduated in 1990 with a Bachelor of Electronic Engineering from Harbin Institute of Technology, and received a Master’s Degree in Mobile Communications from Polytechnic Institute of New York University and a doctoral degree in management from Hong Kong Polytechnic University.
Mr. GAO Tongqing has served as our Vice President since February 2020. Mr. Gao is principally in charge of legal and regulatory matters, research and development, international business, investment and information technology. He is also a Vice President and General Counsel of CMCC and a director and vice president CMC. In June 2020, Mr. Gao was appointed as a
non-executive
director of China Communications Services Corporation Limited and vice chairman of True Corporation. Since August 2020, Mr. Gao has served as a
non-executive
director of China Tower. Mr. Gao previously served as Deputy Director General of Xinjiang Uygur Autonomous Region Posts and Telecommunications Administration, Deputy General Manager and the General Manager of Xinjiang Uygur Autonomous Region Telecom Company, General Manager of China Telecom Jiangsu branch, Vice President of China Telecommunications Corporation, and Executive Director and Executive Vice President of China Telecom Corporation Limited. He graduated from the Changchun Institute of Posts and Telecommunications with a major in telecommunications engineering and received a doctorate degree in business administration from the Hong Kong Polytechnic University.
Mr. JIAN Qin has served as our Vice President since September 2019. Mr. Jian is principally in charge of marketing, customer service, terminals, mobile Internet, financial technology and others. Mr. Jian is also a Vice President of CMCC, a director and vice president of CMC and a director of Phoenix Media Investment (Holdings) Limited. Previously he served as a Deputy Director of the Nanchang Telecom Bureau, Chairman and President of China Mobile Group Jiangxi Co., Ltd., China Mobile Group Sichuan Co., Ltd. and China Mobile Group Guangdong Co., Ltd. Mr. Jian graduated in 1989 from Beijing University of Posts and Telecommunications majoring in Computer and Communication, and received a Doctoral degree in Industrial Economics from Jiangxi University of Finance and Economics.
Mr. ZHAO Dachun has severed as our Vice President since September 2019. Mr. Zhao is principally in charge of corporate customers, software technology R&D, IoT, ICT and other matters. Mr. Zhao is also a Vice President of CMCC and a director and vice president of CMC. Previously, Mr. Zhao served as Chairman and President of China Mobile Group Shaanxi Co., Ltd. and China Mobile Group Sichuan Co., Ltd. Mr. Zhao graduated in 1993 from Southeast University majoring in Radio Technology and received an EMBA from Nanjing University.
Compensation
The amount of compensation that we paid to our executive directors for their services in 2021 was approximately RMB4.1 million (US$0.6 million). The amount of compensation that we paid to our independent
non-executive
directors for their services in 2021 was approximately HK$1.4 million (US$0.2 million). See note 11 to our consolidated financial statements included in this annual report on Form
20-F
for details of the compensation we paid to our directors on an individual basis.
Board Practices
To enhance our corporate governance, we have three principal board committees: the audit committee, the remuneration committee and the nomination committee. The audit committee, the remuneration committee and the nomination committee are all comprised solely of independent
non-executive
directors.
Audit Committee
The members of our audit committee are Mr. Stephen K.W. Yiu, as chairman of the committee, Dr. Moses M.C. Cheng, Mr. Paul M.Y. Chow and Dr. Yang Qiang. The audit committee’s major responsibilities include:
 
-57-

   
to review the financial reports, the related report of the independent registered public accounting firm and management’s responses to the reports;
 
   
to discuss the audit procedures with the independent registered public accounting firm as well as any issues arising out of such procedures;
 
   
to review the appointment of the independent registered public accounting firm, the audit and
non-audit
fees and any matters relating to the termination or resignation of the independent registered public accounting firm;
 
   
to examine the effectiveness of our internal controls, to review our internal audit plan and to submit relevant reports and recommendations to our board of directors on a regular basis; and
 
   
to review and supervise the training and continued professional development of and performance of duties by directors and senior management, and to formulate and review manuals (if any) on the performance of duties and compliance by employees and directors and to supervise the implementation of such manuals (if applicable).
The audit committee usually meets five times each year.
Remuneration Committee
The members of our remuneration committee are Dr. Moses M.C. Cheng, as chairman of the committee, Mr. Paul M.Y. Chow and Mr. Stephen K.W. Yiu. The remuneration committee’s major responsibilities include:
 
   
to advise the Board in relation to the remuneration structure and payments of our executive directors and executives; and
 
   
to represent the Board in confirming the individual remuneration packages and employment terms of executive directors and approving their related employment contracts.
Meetings of the remuneration committee are held at least once a year.
Nomination Committee
The members of our nomination committee are Mr. Paul M.Y. Chow, as chairman of the committee, Dr. Moses M.C. Cheng and Stephen K.W. Yiu. The primary responsibilities of the nomination committee include:
 
   
to review, advise and make recommendations to the board on the matters in relation to the appointment and
re-appointment
of board members; and
 
   
to ensure the proper and transparent procedures for the appointment and
re-appointment
of directors.
Meetings of the nomination committee are held at least once a year.
We have not entered into any service contract with a specific term with our directors. All directors are subject to retirement by rotation. No compensations are payable to our directors upon termination of their services with us, except certain statutory compensation.
Employees
See “Item 4. Information on the Company—Business Overview—Employees.”
Share Ownership
As of March 31, 2022, our directors and senior management who own shares in our company are listed as follows:
 
Director
  
Number of
shares held
    
Percentage of
ordinary shares
 
Moses M.C. Cheng
     300,000        0.0015
 
*
Including interest of controlled corporation.
 
-58-

Under our Articles of Association, our directors and senior management do not have different voting rights when compared to other holders of shares in the same class.
Our board of directors resolved to propose the adoption of a share option scheme, or the Scheme. See Exhibit 1.1 to our report on Form
6-K
furnished on January 24, 2020 for a summary of the key terms of the Scheme. The Scheme has been approved by the State-Owned Assets Supervision and Administration Commission of the State Council of the PRC and by our shareholders at the annual general meeting held on May 20, 2020. On June 12, 2020, our board of directors approved a grant of share options representing an aggregate of 305,601,702 ordinary shares to 9,914 participants in the Scheme. See Exhibit 1.1 to our report on Form
6-K
furnished on June 15, 2020 for further information.
 
Item 7.
Major Shareholders and Related Party Transactions.
Major Shareholders
As of March 31, 2022, China Mobile Hong Kong (BVI) Limited, a wholly-owned subsidiary of China Mobile (Hong Kong) Group Limited, held 14,890,116,842 ordinary shares of our Company. CMCC, a state-owned company, holds all of the voting shares and economic interest in China Mobile (Hong Kong) Group Limited, and it also held 26,208,210 ordinary shares of our Company directly. The ordinary shares held by CMCC, directly or indirectly, represented approximately 69.82% of our issued and outstanding share capital as of March 31, 2022. No other persons own 5% or more of our ordinary shares. Between our initial public offering in 1997 and March 31, 2022, our majority shareholders held, directly or indirectly, between approximately 69.82% and 76.5% of equity interest in us, except for brief periods following our equity offerings in 1999 and 2000 but before the issuance of consideration shares to our direct shareholder, China Mobile Hong Kong (BVI) Limited, for the related acquisitions, during which periods the shareholding was temporarily lower. See “Item 4. Information on the Company—The History and Development of the Company—Industry Restructuring and Changes in Our Shareholding Structure” for changes during the past three years with respect to our majority shareholders. Under our Articles of Association, our major shareholders do not have different voting rights when compared to other holders of shares in the same class. See “Item 9. The Offer and Listing” for the number of our ordinary shares.
We are not aware of any arrangement which may at a subsequent date result in a change of control over us.
Related Party Transactions
As of March 31, 2022, CMCC directly or indirectly owned approximately 69.82% of our issued and outstanding share capital.
We and each of our subsidiaries have entered into various related party transactions. The principal terms of the agreements for these related party transactions are described below.
Certain charges for the services under these agreements are based on tariffs set by the PRC regulatory authorities. Those transactions where the charges are not set by PRC regulatory authorities are based on commercial negotiation between the parties, in each case on an arm’s-length basis.
International Roaming Arrangements
Pursuant to an agreement between us and CMCC (the “International Roaming Settlement Agreement”), CMCC maintains the existing settlement arrangements with respect to international interconnection and roaming with the relevant telecommunications services providers in foreign countries and regions, and collects the relevant usage fees and other fees from us and pays the same to the relevant mobile services providers in foreign countries and regions. On September 13, 2012, we entered into an agreement with CMCC, pursuant to which CMCC would gradually transfer its settlement arrangements with certain telecommunications services providers in foreign countries and regions to China Mobile International, our wholly-owned subsidiary. As a result, our arrangement with CMCC with respect to international interconnection and roaming with those telecommunications services providers has been gradually phasing out.
Licensing of Trademark
CMCC is the owner of the “CHINA MOBILE” name and logo, a registered trademark in the mainland of China, Hong Kong, Macau, Taiwan, Brazil, Brunei, Canada, Chile, Indonesia, Malaysia, Nigeria, United Arab Emirates, Pakistan, Peru, Saudi Arabia, South Africa, Sri Lanka and Yemen, and an application as a trademark under the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks has been approved in 47 countries.
 
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In June 2021, we entered into the 2021 Trademark License Agreement to replace the 2018 Trademark License Agreement. Under the 2021 Trademark License Agreement, we and our operating subsidiaries have a
non-exclusive
right to use the “CHINA MOBILE” trademark in the mainland of China and Hong Kong. The term of the 2021 Trademark License Agreement shall be ten years, effective from June 7, 2021. No license fee is payable by us to CMCC during the term of the 2021 Trademark License Agreement or the 2018 Trademark License Agreement.
Spectrum Fees and Numbering Resources
The MIIT and the MOF jointly determine the standardized spectrum fees payable to the MIIT by all mobile operators in the mainland of China, including us. In accordance with a joint circular from the NDRC and the MOF, CMCC entered into an agreement with us that specifies the amount of fees to be paid to the MIIT for spectrum usage by each mobile network operator based on the bandwidth of the frequency used.
Pursuant to an agreement between us and CMCC (the “Spectrum and Numbering Resources Agreement”), CMCC can collect usage fees from us relating to spectrum frequency and numbering resources and make payment to the MIIT. In addition to transferring to us all existing frequency spectrum and numbering resources allocated to it by the MIIT, CMCC has also agreed to apply for new frequency spectrum and numbering resources upon our request or notice from time to time and transfer the relevant new frequency spectrum and numbering resources to us. In 2021, no consideration was paid from us to CMCC or from CMCC to us under the Spectrum and Numbering Resources Agreement.
Sharing of Inter-Provincial Transmission Line Leasing Fees
Pursuant to an agreement between us and CMCC (the “Inter-Provincial Transmission Line Leasing Settlement Agreement”), CMCC maintains the existing settlement arrangements with respect to inter-provincial transmission line leasing with the relevant transmission line providers in the mainland of China, and collects inter-provincial transmission line leasing fees from us and pays the same to the transmission line providers in respect of the inter-provincial transmission lines we lease from such providers. In 2021, no consideration was paid from us to CMCC or from CMCC to us under the Inter-Provincial Transmission Line Leasing Settlement Agreement.
Leasing of
TD-SCDMA
Network Capacity
Pursuant to a network capacity leasing agreement between us and CMCC (the “Network Capacity Leasing Agreement”), we and our operating subsidiaries lease
TD-SCDMA
network capacity from CMCC and pay leasing fees to CMCC. The initial term of the Network Capacity Leasing Agreement expired on December 31, 2009 and the agreement has been renewed for successive
one-year
periods since that time.
The leasing fees are determined on a basis that reflects our actual usage of CMCC’s
TD-SCDMA
network capacity and compensates CMCC for the costs of such network capacity. The amount of leasing fees payable by us to CMCC in 2021 under the Network Capacity Leasing Agreement did not exceed the de minimis threshold under the Hong Kong Listing Rules. The transactions contemplated under the Network Capacity Leasing Agreement constitute our continuing connected transactions under Rule 14A.31 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, or the Hong Kong Listing Rules, but are exempt from the reporting, annual review, announcement and independent shareholders’ approval requirements under the Hong Kong Listing Rules.
Interconnection Settlement Arrangements
China Tietong, which was a then wholly-owned subsidiary of CMCC, was our connected person for purposes of the Hong Kong Listing Rules. Pursuant to an agreement among us, CMCC and China Tietong (the “Tripartite Agreement”), we and China Tietong make settlement payments to each other in respect of calls made or received by our respective customers. The initial term of the Tripartite Agreement expired on December 31, 2009. The Tripartite Agreement provides that unless the parties agree otherwise, upon expiry of its term, the Tripartite Agreement shall automatically be renewed for further terms of one year.
Following the completion of the acquisition of Target Assets and Businesses on December 31, 2015, the business contracts and relevant transactions between us, CMCC and China Tietong as contemplated under the Tripartite Agreement have been conducted by us and our subsidiaries. As a result, the interconnection settlement arrangements pursuant to the Tripartite Agreement ceased to be our continuing connected transactions under Chapter 14A of the Hong Kong Listing Rules.
 
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Telecommunication Network Operation Assets Leasing Agreement
In order to better position ourselves in the changing landscape of the telecommunications industry in China and to enable us to meet the customers’ demand for
one-stop
shop telecommunications services, we entered into the Network Assets Leasing Agreement with CMCC on August 18, 2011 (the “2011 Network Assets Leasing Agreement”), pursuant to which we and CMCC will lease our respective telecommunications network operation assets to each other in return for a leasing fee. The initial term of the 2011 Network Assets Leasing Agreement expired on December 31, 2011, and the agreement has been renewed for successive
one-year
periods since then until it expired on December 31, 2019. On January 2, 2020, we entered into the 2020 Network Assets Leasing Agreement with CMCC for a term of one year commencing on January 1, 2020. The terms and conditions of the 2020 Network Assets Leasing Agreement are substantially the same as those of the 2011 Network Assets Leasing Agreement, except that the 2020 Network Assets Leasing Agreement is for a fixed term of one year and is not automatically renewable upon expiry. On January 8, 2021, we entered into the 2021 Telecommunications Network Operation Assets Leasing Agreement with CMCC for a term of one year commencing on January 1, 2021. On January 3, 2022, we and CMCC further entered into (i) the 2022 Leasing Agreement of Power Support and Other Network Assets and Resources for a term of one year commencing on January 1, 2022 and (ii) the 2022-2024 Leasing Agreement of Machinery Rooms and Transmission Pipelines for a term of three years commencing on January 3, 2022.
Pursuant to the 2022 Leasing Agreement of Power Support and Other Network Assets and Resources and the 2022-2024 Leasing Agreement of Machinery Rooms and Transmission Pipelines, the relevant leasing fees are payable on a monthly basis in cash and shall be determined with reference to the prevailing market rates. In determining the market rates for the leasing fees, we take into account the charges payable by us and CMCC to independent third parties (including other industry players) as well as the charges receivable by us and CMCC from independent third parties (including other industry players). The leasing fees payable by us to CMCC shall not be more than the leasing fees charged to other independent third parties for the same kinds of network assets.
The amount of leasing fees receivable by us from CMCC and its subsidiaries in 2021 under the 2021 Telecommunications Network Operation Assets Leasing Agreement did not exceed the de minimis threshold under the Hong Kong Listing Rules, and the amount of leasing fees payable by us to CMCC and its subsidiaries in 2021 under the 2021 Telecommunications Network Operation Assets Leasing Agreement did not exceed RMB6,500 million.
It is expected that, in 2022, the amount of leasing fees payable by us to CMCC under the 2022 Leasing Agreement of Power Support and Other Network Assets and Resources will not exceed RMB6,500 million, while the aggregate amount of the leasing fees receivable by us from CMCC will not exceed the de minimis threshold under Rule 14A.76 of the Hong Kong Listing Rules. It is also expected that, in 2022, the amount of leasing fees payable by us under the 2022-2024 Leasing Agreement of Machinery Rooms and Transmission Pipelines will not exceed RMB3,500 million, and the total value of the
right-of-use
assets recognizable by us thereunder will not exceed RMB11,000 million, while the aggregate amount of the leasing fees receivable by us from CMCC and its subsidiaries will not exceed the de minimis threshold under Rule 14A.76 of the Hong Kong Listing Rules. The transactions contemplated under the 2022 Leasing Agreement of Power Support and Other Network Assets and Resources and the 2022-2024 Leasing Agreement of Machinery Rooms and Transmission Pipelines constitute our continuing connected transactions under Rule 14A.31 of the Hong Kong Listing Rules and are subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders’ approval requirements under the Hong Kong Listing Rules.
Assets Transfer Agreements
On August 9, 2019, certain of our provincial subsidiaries (the “Purchasers”) entered into assets transfer agreements with the subsidiaries of CMCC in the relevant provinces (the “Vendors”). Pursuant to these assets transfer agreements, the Purchasers agreed to acquire from the Vendors certain telecommunication network operation assets, including properties and buildings, land use rights, machinery and equipment, transmission pipelines and optic fibers, related to the “Village Connect” project (the “Sale Assets”). The aggregate consideration under these assets transfer agreements is RMB873.0 million, determined after arm’s length negotiations between the parties to these agreements with reference to the appraised value of the Sale Assets as set out in an assets valuation report prepared by an independent valuer using costs approach. The acquisition of the Sale Assets allows us to consolidate the Sale Assets with our other network operation assets, thereby enhancing the overall efficiency of the management of our network operation assets.
 
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Telecommunication Facilities Construction Services Agreement
On August 9, 2019, we entered into the Telecommunications Services Agreement with CMCC, pursuant to which we provide telecommunications services to CMCC and its subsidiaries. Telecommunications services provided by us under this agreement include (i) telecommunications project planning, design and consultation services, (ii) telecommunications project construction services and (iii) maintenance services in respect of telecommunications facilities and equipment. Following the expiry of this agreement on December 31, 2019 and to continue the provision of services contemplated under such agreement, we entered into the 2020 Telecommunication Facilities Construction Services Agreement with CMCC on January 2, 2020 with a
one-year
term commencing on January 1, 2020. On January 8, 2021, we entered into the 2021 Telecommunication Facilities Construction Services Extension Letter with CMCC to renew the 2020 Telecommunication Facilities Construction Services Agreement according to its terms for a term of one year commencing on January 1, 2021. On January 3, 2022, we entered into the 2022 Telecommunication Facilities Construction Services Extension Letter with CMCC to renew the 2020 Telecommunication Facilities Construction Services Agreement (as renewed) according to its terms for a term of one year commencing on January 1, 2022.
Under the 2020 Telecommunication Facilities Construction Services Agreement, services charges for telecommunications project planning, design and consultation services will be payable by installments or upon completion of provisions of services. Services charges for telecommunications project construction services will be payable by installments, typically with 10% payable upon signing of the relevant engagement, 70% over the course of the construction and the remaining amount upon completion and acceptance of the project. Services charges for maintenance services in respect of telecommunications facilities and equipment will be payable monthly. The amount of telecommunication facilities construction services charges receivable by us from CMCC and its subsidiaries under the 2020 Telecommunication Facilities Construction Services Agreement did not exceed RMB2,000 million in 2021 and is expected not to exceed RMB2,000 million in 2022.
Transfer of Tower Assets to China Tower
On October 14, 2015, CMC entered into the Transaction Agreement with CUCL, China Telecom, CRHC and China Tower, pursuant to which CMC, CUCL and China Telecom shall transfer their then-owned telecommunications towers and related assets to China Tower, China Tower shall issue and allot shares in China Tower and/or pay certain cash as consideration for such transfers and CRHC shall subscribe for new shares in China Tower in cash. The transaction was completed on October 31, 2015. CMC transferred Tower Assets to China Tower for a final consideration of RMB102,736 million (approximately US$15,859.7 million). In January 2016, seven subsidiaries of CMC and China Tower entered into share subscription agreements to settle the number of shares subscribed by such subsidiaries and the amount of the consideration. China Tower completed its initial public offering and listed on the main board of the Hong Kong Stock Exchange in August 2018 and, as a result, our equity interest was diluted from 38% to approximately 28%. As of March 31, 2022, we indirectly owned approximately 28% equity interest in China Tower through CMC, our wholly-owned subsidiary.
Telecommunications Towers and Related Assets Lease Arrangement
On July 8, 2016, CMC entered into the Lease Agreement with China Tower, pursuant to which CMC agreed to lease from China Tower telecommunications towers and related assets acquired and newly constructed by China Tower. Under the Lease Agreement, leasing fees and lease periods are determined on an individualized basis with respect to each telecommunications tower. We shall pay leasing fees calculated based on a pricing formula taking into account various factors, subject to a pricing adjustment mechanism.
On January 31, 2018, pursuant to the Commercial Pricing Agreement and after mutual negotiations and discussion on an
arm’s-length
basis, the parties agreed on the supplementary provisions to the Lease Agreement (the “Supplementary Agreement”), which mainly included amendments to the pricing of tower products stated in the Lease Agreement. The term of the Supplementary Agreement shall be five years, effective from January 1, 2018 and expiring on December 31, 2022. The parties shall negotiate the pricing terms going forward prior to expiry.
 
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During 2016 and 2017, the SEC issued comment letters relating to the Company’s previously filed annual reports on Form
20-F
for the fiscal years ended December 31, 2015 and 2016. The comment letters inquired mainly about the background, execution process, and accounting treatment in relation to the Company’s disposal and lease of telecommunications towers and related assets with China Tower. The Company responded to these comment letters and was notified by the SEC in its letter dated October 20, 2017 that it has completed its review of such previously filed annual reports of the Company. The SEC did not in its October 2017 letter require us to make any amendment to those previously filed annual reports.
Property Leasing and Management Services
Following the completion of our acquisition of the telecommunications assets from CMCC in July 2004, the transactions previously entered into between our subsidiaries and prior subsidiaries of CMCC which have been acquired by us no longer constitute connected transactions under Chapter 14A of the Hong Kong Listing Rules beginning on July 1, 2004 since such prior subsidiaries of CMCC became part of us on July 1, 2004. Only those transactions between CMCC and us or its subsidiaries (which have not been acquired by us) remain as connected transactions under Chapter 14A of the Hong Kong Listing Rules. As of the date of this annual report on Form
20-F,
in order to streamline the management of the connected transactions between CMCC and us, we consolidated the Property Leasing and Management Services Agreement (the “Property Leasing and Management Services Agreement”) between CMCC and us, pursuant to which we rent from CMCC various properties for use as business premises and offices, retail outlets and machining rooms and CMCC and its subsidiaries provide to us property management services. Under this agreement, for properties owned by CMCC or its subsidiaries, the charges are determined with reference to market rates. For properties leased by CMCC or its subsidiaries from third parties and sublet to us, the charges are determined according to the actual rent payable by CMCC or its subsidiaries together with any tax payable.
The rental and property management service charges paid by us to CMCC and its subsidiaries under the Property Leasing and Management Services Agreement did not exceed RMB2,200 million, RMB2,000 million and RMB2,000 million in 2019, 2020 and 2021, respectively.
The transactions contemplated under the Property Leasing and Management Services Agreement constitute our continuing connected transactions under Rule 14A.31 of the Hong Kong Listing Rules and are subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders’ approval requirements under the Hong Kong Listing Rules. The rental charges payable by us to CMCC and its subsidiaries under the Property Leasing and Management Services Agreement in 2022 are not expected to exceed RMB2,000 million, and the total value of
right-of-use
assets relating to the leases thereunder is not expected to exceed RMB1,900 million in 2022.
 
Item 8.
Financial Information.
Consolidated Financial Statements
Our audited consolidated financial statements are set forth beginning on page F-1. Other than as disclosed elsewhere in this annual report on Form 20-F, no significant change has occurred since the date of the annual financial statements.
Legal Proceedings
We have been subject to an on-going investigation by the SAMR over alleged violation of the PRC Anti-Monopoly Law. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—We have been subject to an on-going investigation by the State Administration for Market Regulation over alleged violation of the PRC Anti-Monopoly Law and we currently cannot predict whether or when the SAMR will issue its decision.”
Other than the above, we are not involved in any material litigation, arbitration or administrative proceedings, and, so far as we are aware, we do not have any pending or threatened litigation, arbitration or administrative proceeding that is expected to have a material effect on our financial condition and results of operations.
 
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Policy on Dividend Distributions
We hold in the highest regard the interests of our shareholders and the returns achieved for them, especially our minority shareholders. In consideration of our operating results in 2021 and having taken into account our long-term future development, our board of directors recommended payment of a final dividend of HK$2.43 per share for the fiscal year ended December 31, 2021. This, together with the interim dividend of HK$1.63 per share, amounted to an aggregate dividend payment of HK$4.06 per share for the full fiscal year of 2021. Dividends for our ordinary shares listed on the Hong Kong Stock Exchange will be paid in Hong Kong dollars. Since the dividend will be denominated and declared in Hong Kong dollar, for RMB Shares, the dividends will be paid in Renminbi with the conversion rate to be calculated based on the average central parity rate between Hong Kong dollars and Renminbi announced by the People’s Bank of China in the week before the date of the declaration of dividends at the annual general meeting. In case of any change in the total number of our issued ordinary shares between the date of proposal and the record date for the implementation of the 2021 final dividend, we intend to keep the total amount of profit distribution unchanged and adjust the amount of dividend per share accordingly.
To create higher returns for our shareholders and share the results of our operating gains, after giving full consideration to the Company’s profitability, cash flow conditions and future development needs, in the three-year period from 2021, the profit to be distributed in cash for each year will gradually increase to 70% or above of the profit attributable to equity shareholders of the Company for that year.The Company will strive to create greater value for shareholders.
 
Item 9.
The Offer and Listing.
In connection with our initial public offering, our ADSs, each representing 20 ordinary shares, were listed and commenced trading on the NYSE on October 22, 1997 under the symbol “CHL.” Effective from July 5, 2000, our ADS-to-share ratio has been changed to one-to-five. Our ordinary shares were listed and commenced trading on the Hong Kong Stock Exchange on October 23, 1997 under the stock code “941.” Prior to these listings, there was no public market for our equity securities. Our ADSs were delisted from the NYSE on May 18, 2021. In light of the delisting, we terminated our ADSs program subsequently on September 13, 2021 and therefore, we no longer have any ADSs outstanding. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Transactions in our ordinary shares by U.S. persons beyond specified dates are prohibited and our ADSs were delisted.”
In January 2022, we completed an issuance of additional ordinary shares which are subscribed for in Renminbi by investors in the PRC, listed on the Shanghai Stock Exchange and traded in Renminbi (the “RMB Shares”). The RMB Shares belong to the same class of shares as our existing ordinary shares listed on the Hong Kong Stock Exchange. Our RMB Shares were listed and commenced trading on the Shanghai Stock Exchange on January 5, 2022 under the stock code “600941”. Given the delisting of our ADSs from the NYSE and the new listing of our RMB Shares on the Shanghai Stock Exchange, now the Hong Kong Stock Exchange and the Shanghai Stock Exchange are the principal markets for our ordinary shares, which are not listed on any other exchanges in or outside the United States.
As of December 31, 2021 and March 31, 2022, there were 20,475,482,897 and 21,362,826,764, respectively, of our ordinary shares issued and outstanding.
 
Item 10.
Additional Information.
Articles of Association
According to the Companies Ordinance, we have the capacity and the rights, powers and privileges of a natural person of full age and, in addition and without limit, we may do anything that we are permitted or required to do by any enactment or rule of law.
Directors
Material Interests.
A director (or an entity connected with a director) who is in any way, whether directly or indirectly, interested in a transaction, arrangement or contract or proposed transaction, arrangement or contract with us shall declare the nature and extent of his interest in accordance with the provisions of the Companies Ordinance and our Articles of Association. A director shall not vote (nor shall be counted in the quorum), on any resolution of the board in respect of any contract or transaction or arrangement or proposal in which he or any of his Associates (as such term is defined in the Hong Kong Listing Rules), is to his knowledge, materially interested, and if he shall do so, his vote shall not be counted (nor shall be counted in the quorum for that resolution). The above prohibition shall not apply to any contract, arrangement or proposal:
 
   
for the giving by us of any security or indemnity to the director or his Associates in respect of money lent or obligations incurred or undertaken by him or any of them at the request of, or for, our or any of our subsidiaries’ benefit;
 
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for the giving by us of any security to a third party in respect of our or any of our subsidiaries’ debt or obligation for which the director or his Associates has himself or themselves assumed responsibility or guaranteed or secured in whole or in part whether alone or jointly;
 
   
concerning an offer of the shares or debentures or other securities of or by us or any other company which we may promote or be interested in for subscription or purchase where the director or his Associates are, or are to be, interested as a participant in the underwriting or
sub-underwriting
of the offer;
 
   
in which the director or his Associates are interested in the same manner as other holders of our shares or debentures or other securities by virtue only of his or their interest in our shares or debentures or other securities;
 
   
concerning any other company in which the director or his Associates are interested, whether directly or indirectly, as an officer or a shareholder or in which the director or his Associates are beneficially interested in shares of that company other than a company in which the director and any of his Associates, are beneficially interested in 5% or more of the issued shares of any class of the equity share capital of such company (or of any third company through which his interest or that of his Associates is derived) or of the voting rights (excluding for the purpose of calculating such 5% interest any indirect interest of such director or his Associates by virtue of our interest in such company);
 
   
for the benefit of our or any of our subsidiaries’ employees, including the adoption, modification or operation of a pension fund or retirement, death or disability benefit scheme which relates both to our, or any of our subsidiaries’, directors, his Associates and employees and does not give the director or his Associates any privilege not generally accorded to the class of persons to whom such scheme or fund relates; and
 
   
concerning the adoption, modification or operation of any employees’ share scheme involving the issue or grant of options over shares or other securities by us to, or for the benefit of, our or any of our subsidiaries’ employees under which the director or his Associates may benefit.
Remuneration and Pension.
The directors shall be entitled to receive by way of remuneration for their services such sum as we may determine from time to time in a general meeting. The directors shall also be entitled to be repaid their reasonable traveling, hotel and other expenses incurred by them in or about the performance of their duties as directors. The directors may award special remuneration out of our funds (by way of salary, commission or otherwise as the directors may determine) to any director who performs services which, in the opinion of the directors, are outside the scope of the ordinary duties of a director.
The board may establish and maintain or procure the establishment and maintenance of any contributory or
non-contributory
pension or superannuation funds for the benefit of, or give or procure the giving of donations, gratuities, pensions, allowances or emoluments to any persons (1) who are or were at any time in employment or service of our company, or any of our subsidiaries, or is allied or associated with us or with any of our subsidiaries, or (2) who are or were at any time our or any of our subsidiaries’ directors or officers, and holding or who have held any salaried employment or office in our company or any of our subsidiaries, and the wives, widows, families and dependents of any such persons. Any director holding any such employment or office shall be entitled to participate in, and retain for his own benefit, any such donation, gratuity, pension, allowance or emolument.
Borrowing Powers.
Subject to the relevant provisions of our Articles of Association and relevant policies governing the procedures of meetings, the directors may exercise all the powers of our company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital and to issue debentures, debenture stocks, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of our company or any third party. Such borrowing powers may be varied by an amendment to our articles of association.
Qualification; Retirement.
A director need not hold any of our shares to qualify as a director. There is no age limit requirement for a director’s retirement or
non-retirement.
 
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Each director is subject to retirement by rotation and at each general meeting,
one-third
of the directors for the time being, or, if their number is not three or a multiple of three, then the number nearest to
one-third,
shall retire from office by rotation. The directors to retire in every year shall be those who have been longest in office since their last election, but as between persons who became directors on the same day shall be determined by lot unless they otherwise agree between themselves. The retiring directors shall be eligible for
re-election.
Rights Attaching to Ordinary Shares
Voting Rights.
Under the Companies Ordinance, any action to be taken by the shareholders in a general meeting requires the affirmative vote of either an ordinary or a special resolution passed at the meeting. An ordinary resolution is one passed by the majority of such shareholders as are entitled to, and do, vote in person or by proxy at a general meeting. A special resolution is one passed by not less than three-quarters of such shareholders as are entitled to, and do, vote in person or by proxy at a general meeting. Generally, resolutions of shareholders are passed by ordinary resolution. However, the Companies Ordinance stipulates that certain matters may only be passed by special resolutions.
At any general meeting a resolution put to the vote of the meeting shall be decided on a poll demanded by:
 
   
the chairman of the meeting;
 
   
at least three members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and entitled to vote at the meeting;
 
   
any member or members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and representing in the aggregate not less than five per cent. of the total voting rights of all members having the right to attend and vote at the meeting; or
 
   
any member or members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than five per cent. of the total sum paid up on all shares conferring that right;
provided that a resolution put to the vote of the meeting may be decided on a show of hands to the extent permitted by the listing rules of the relevant stock exchange(s).
Subject to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, every member who (being an individual) is present in person or (being a corporation) is present by a representative duly authorized under Section 606 of the Companies Ordinance at any general meeting shall be entitled, on a show of hands, to one vote only and, on a poll, to one vote for every fully
paid-up
share of which he is the holder.
On a poll, votes may be given either personally or by proxy and a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.
Modification of Rights.
All or any of the special rights attached to any class of shares (unless otherwise provided for by the terms of issue of the shares of that class) for the time being in issue may, subject to the provisions of the Companies Ordinance, at any time, as well as before or during liquidation, be altered or abrogated either with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of shares of that class.
Issue of Shares.
A general meeting resolving upon the creation of any new shares may direct that the same or any of them shall be offered, in the first instance, to all the holders for the time being of any class of shares in the capital of our company, in proportion to the number of shares of such class held by them respectively, or make any other provisions as to the issue and allotment of the new shares, and in default of any such direction, or so far as the same shall not extend, the new shares shall be at the disposal of the directors to the extent permitted by applicable laws and regulations, the listing rules of the relevant stock exchange(s) and our Articles of Association, and Article 9 of the Articles of Association shall apply thereto.
Dividends.
We may by ordinary resolution declare dividends, but no such dividend shall be declared in excess of the amount recommended by the directors.
 
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In accordance with applicable laws and regulations and as authorized at a general meeting, the board may, if it thinks fit, from time to time, resolve to pay to the members such interim dividends as appear to the board to be justified.
All dividends unclaimed for one year after having become payable may be invested or otherwise made use of by the directors for our benefit until claimed, and all dividends unclaimed for six years after having become payable may be forfeited by the directors and shall revert to us.
Winding Up.
If we shall be wound up, the liquidator (whether voluntary or official) may, with the sanction of a special resolution, divide among the shareholders in specie or kind the whole or any part of our assets or vest any part of our assets in trustees upon such trusts for the benefit of the members or any of them as the resolution shall provide.
Miscellaneous.
The shareholders are not entitled to any redemption rights, conversion rights or preemptive rights on the transfer of our securities.
Annual General Meetings and Extraordinary General Meetings
We must hold, in each year, a general meeting as our annual general meeting in addition to any other meetings in that year. The annual general meeting must be held within six months after the end of each fiscal year. All other general meetings are extraordinary general meetings. The directors may proceed to convene an extraordinary general meeting whenever they think fit, in accordance with the Companies Ordinance.
In general, an annual general meeting and a meeting called for the passing of a resolution requiring special notice as stipulated under Section 578 of the Companies Ordinance shall be called by not less than 21 days’ notice in writing, and any other general meeting shall be called by not less than 14 days’ notice in writing. The notice must specify the date and time of the meeting and, save for an electronic meeting, the Principal Meeting Place, i.e. the place of the meeting or if there is more than one meeting location, the principal place of the meeting, as well as the agenda and particulars of the resolutions. If the general meeting is to be a hybrid meeting or an electronic meeting, the notice shall include a statement to that effect and with details of the electronic facilities for attendance and participation at the meeting or where such details will be made available by us prior to the meeting. In the case of special business, the notice shall also specify the general nature of that business.
Miscellaneous
We keep our share register with our share registrar, which is Hong Kong Registrars Ltd., Shops 1712-1716, 17
th
Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. In addition, we also file certain documents with the Registrar of Companies, Hong Kong, China, in accordance with the requirements of the Companies Ordinance. Our company number is 622909. See Exhibit 2.5 to this annual report for more information about our articles of association.
Material Contracts
Related Party Transactions
See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” for certain arrangements we have entered into with CMCC and China Tower.
Exchange Controls
The Renminbi currently is not a freely convertible currency. Under the “capital account,” which includes, among others, foreign direct investment, the prior approval of the State Administration of Foreign Exchange should be obtained prior to conversion of Renminbi into foreign currency. However, under the “current account,” which includes dividends, trade and service-related foreign currency transactions, the Renminbi is currently freely convertible.
 
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The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC and international economic conditions and foreign exchange policies. The conversion of Renminbi into foreign currencies, including U.S. dollars and Hong Kong dollars, is based on rates set by the PBOC. The PRC government allowed the Renminbi to appreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. In August 2015, the PBOC announced that the
mid-point
exchange rate for the floating range of Renminbi against the U.S. dollar will be determined based on market-maker submissions that take into account the Renminbi-U.S. dollar exchange rate at the previous day’s closing of the inter-bank spot foreign exchange market, the supply and demand dynamics and the movements of other major currencies. Since October 1, 2016, the Renminbi has joined the International Monetary Fund’s basket of currencies that make up the Special Drawing Right, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and there is no guarantee that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. See “Item 3. Key Information—Risk Factors—Risks Relating to the mainland of China—Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows” for further information.
Under Hong Kong law, there are no foreign exchange controls or other laws, decrees or regulations that (i) restrict the import or export of capital or affect the availability of cash and cash equivalents for our use or (ii) affect the remittance of dividends, interests or other payments to
non-resident
holders of our securities. There are no limitations on the right of
non-resident
or foreign owners to hold or vote the ordinary shares imposed by Hong Kong law or by our Articles of Association or other constituent documents.
Taxation—Mainland of China
This section describes certain PRC tax consequences relating to the ownership and disposition of our ordinary shares. This section does not address all possible PRC tax considerations that may be relevant to an investment in our ordinary shares in light of an investor’s specific circumstances, and is based on PRC tax laws and relevant interpretations as in effect as of the date of this annual report on Form
20-F,
which are subject to change, including the possibility of having retroactive effect. Accordingly, you should consult your own tax advisor regarding the PRC and other tax consequences of an investment in our ordinary shares under your particular circumstances.
Under the PRC Enterprise Income Tax Law and its implementing rules, which took effect since January 1, 2008, or the PRC income tax law, a
non-resident
enterprise is generally subject to PRC enterprise income tax with respect to
PRC-sourced
income. Moreover, the PRC tax authorities have been issuing further interpretations and notices to enhance the application of the PRC income tax law.
Taxation of Dividends
On April 22, 2009, the PRC State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of Tax Residence Status of Chinese-Controlled Offshore-Incorporated Enterprises on the Basis of De Facto Management Bodies, or the 2009 Notice, which had retroactive effect as of January 1, 2008. We are considered a PRC resident enterprise for purposes of the 2009 Notice. In accordance with the 2009 Notice and the PRC income tax law, we are required to withhold enterprise income tax equal to 10% of any dividend when it is distributed to
non-resident
enterprise shareholders whose names appeared on our register of members, as of the record date for such dividend, and who were not individuals.
Taxation of Capital Gains
Under the PRC income tax law, a
non-resident
enterprise is generally subject to PRC enterprise income tax with respect to
PRC-sourced
income, but uncertainties remain as to their implementation by the relevant PRC tax authorities. We intend to comply with any interpretation or notice in relation to the taxation of capital gains issued by the PRC tax authorities in the future.
Other PRC Tax Considerations
Stamp duty.
Under the Provisional Regulations of the PRC Concerning Stamp Duty and its implementing rules, both of which became effective on October 1, 1988, PRC stamp duty should not apply to acquisitions or dispositions of our ordinary shares outside the PRC, as the PRC stamp duty is imposed only on documents executed or received within the PRC that are legally binding in the PRC and protected under the PRC law. On June 10, 2021, the PRC Stamp Duty Law was published, which will become effective on July 1, 2022. Under the PRC Stamp Duty Law, PRC stamp duty still should not apply to acquisitions or dispositions of our ordinary shares outside the PRC, as the PRC stamp duty will continue to be imposed only on documents executed or trade of securities conducted within the PRC, or documents executed outside the PRC but for the use within the PRC.
 
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Estate tax
. The PRC does not currently levy estate tax.
Taxation—Hong Kong
Stamp Duty
Hong Kong stamp duty, currently charged at the rate of 0.13% on the higher of the amount of the consideration for or the value of the ordinary shares, will be payable by the purchaser on every purchase and by the seller on every sale of ordinary shares (i.e., a total of 0.26%) is currently payable on a typical sale and purchase transaction involving ordinary shares). In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of ordinary shares. If one of the parties to the sale is a
non-Hong
Kong resident and does not pay the required stamp duty, the duty not paid will be assessed on the instrument of transfer (if any) and the transferee will be liable for payment of such duty.
Tax on Dividends
Under the current practices of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in respect of dividends paid by us, either by withholding or otherwise, unless such dividends are attributable to a trade, profession or business carried on in Hong Kong.
Profits Tax
No tax is imposed in Hong Kong in respect of capital gains from the sale of property (such as the ordinary shares). Trading gains from the sale of property by persons carrying on a trade, profession or business in Hong Kong where such gains are derived from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong profits tax, which is currently imposed at the rate of 16.5% and 15% on assessable profits of corporations and unincorporated businesses, respectively (except that the respective half-rates of 8.25% and 7.5% apply for the first HK$2 million of assessable profits for years of assessment beginning on or after April 1, 2018). Gains from sales of the ordinary shares effected on the Hong Kong Stock Exchange may be considered by the Hong Kong Inland Revenue Department to be derived from or arise in Hong Kong. Liability for Hong Kong profits tax may thus arise in respect of trading gains from sales of ordinary shares realized by persons carrying on a trade, profession or business in Hong Kong.
Estate Duty
The Revenue (Abolition of Estate Duty) Ordinance 2005 came into effect on February 11, 2006 in Hong Kong. No Hong Kong estate duty is payable and no estate duty clearance papers are needed for an application for a grant of representation in respect of holders of ordinary shares whose death occurs on or after February 11, 2006.
Taxation—United States Federal Income Taxation
This section describes the material United States federal income tax consequences of the ownership and disposition of our ordinary shares. This section applies to you only if you are a U.S. holder, as defined below, and you hold your ordinary shares as capital assets for United States federal income tax purposes. This discussion addresses only United States federal income taxation and does not discuss all of the tax consequences that may be relevant to a US holder in light of its individual circumstances, including foreign, state or local tax consequences, estate and gift tax consequences, and tax consequences arising under the Medicare contribution tax on net investment income or the alternative minimum tax. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
 
   
a dealer in securities or currencies;
 
   
a trader in securities that elects to use a
mark-to-market
method of accounting for your securities holdings;
 
   
a
tax-exempt
organization;
 
   
a life insurance company;
 
   
a person liable for alternative minimum tax;
 
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a person that actually or constructively owns 10% or more of the combined voting power of our voting stock or of the total value of our stock;
 
   
a person that holds ordinary shares as part of a straddle or a hedging or conversion transaction for U.S. federal income tax purposes;
 
   
a person that purchases or sells ordinary shares as part of a wash sale for U.S. federal income tax purposes; or