“Color Ring”. Color Ring “Color Ring” refers to the service where subscriberscustomers can customize the answer ring tone from a wide selection of songs, melodies, sound effects or voice recordings to replace the monotonous ring connecting tone that the caller would hear. We continued to experience growth in our Color Ring business in 2008.2009. Revenue generated from our Color Ring business reached RMB14,380RMB15,413 million in 20082009 compared to RMB11,794RMB14,357 million in 2007.2008.

WAP services. WAP is a technology that allows users to access information instantly via handheld wireless devices such as mobile phones. Subscribers of our WAP services are able to access the Internet via the mini-browsers on their handheld wireless devices. We continued to experience growth in our WAP-based businesses in 2008. Revenue generated from WAP services reached RMB12,991 million in 2008 compared to RMB9,094 million in 2007.

MMS. 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. Revenue generated from MMS business reached RMB2,878 million in 2008 compared to RMB1,567 million in 2007.

Wireless Music. Wireless Music refers to a service that provides music services to subscriberscustomers through mobile telecommunications networks. In 2008,2009, we continued our efforts in business model innovation and strengthened our cooperation with the music media to stimulate and direct customers to try out, use and get accustomed to wireless music products based on “Color Ring”, “IVR for Wireless Music” and “Ringtone Download”. We recorded 7682 million times of full track music downloads in 2008.2009.

Mobile Paper. Mobile Paper is a business we have developed in cooperation with mainstream media in Mainland China and elsewhere, which provides customers with updated information services (including contents such as news, sports, entertainment, cultural activities and lifestyle) through MMS, WAPHandset Internet Access and other types of service. The number of paying subscriberscustomers of Mobile Paper reached 49.12 million as of December 31, 2009 compared to 41.49 million as of December 31, 2008,2008.

MMS. 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. Revenue generated from MMS business reached RMB3,306 million in 2009 compared to 23.55RMB2,873 million as of December 31, 2007.

“Fetion”.“Fetion” enables mobile subscribers to communicate instantly through various means, including SMS, for chatting, dating or interactive entertainment. Our “Fetion” business continued to grow significantly in 2008. The number of active subscribers of “Fetion” reached 37.24 million as of December 31, 2008, as compared to 12.81 million as of December 31, 2007.

“139 Mailbox”. “139 Mailbox” provides subscriberscustomers with typical Internet based mailbox functions and enables them to send and receive as well as manage their emails using SMS, MMS and WAP.Handset Internet Access. The number of active subscriberscustomers of “139 Mailbox” reached 1023.75 million as of December 31, 2009.

“Fetion”. “Fetion” enables mobile customers to communicate instantly through various means, including SMS, for chatting, dating or interactive entertainment. Our “Fetion” business continued to grow significantly in 2009. The number of active customers of “Fetion” reached 62.56 million as of December 31, 2009, as compared to 37.24 million as of December 31, 2008.

We have also strengthened our efforts with respect to other new products and applications in our value-added business,business. We have launched Mobile Market, providing customers with an open platform that enables convenient downloads of mobile software and applications. We have also launched our proprietary OMS platform, an intelligent mobile terminal software platform. Jointly working with handset vendors, we have launched OPhone handsets and provided an end-to-end mobile Internet user experience. We believe that these new products and applications have enhanced our value-added business.

We will continue to develop and promote the application of the “Internet of Things”, which is a network of objects equipped with identifying devices, such as Mobile Gaming, Mobile Video, Mobile MapSIM cards, sensors and Mobile e-Commerce.

With the integrationtwo-dimensional codes, and connected to a wireless network that is capable of our 2G and 3G networks, we have also been able to integrate our 2G and 3G businesses, and all our 2G products and services are also available for subscription, often with enhanced features, on our 3G platform. Our terminals that specifically target potential 3G customers include dual-mode data cards, netbooks and notebook computers equipped with data modules, home Internet access gateways andenabling information terminals. We believe the technological capabilities provided by our 3G platform will enable us to further grow our value-added business.exchange between objects.

Tariffs

The tariffs payable by our subscriberscustomers include primarily usage charges, monthly fees (if applicable) and service fees for voice value-added services and data services. Usage charges forEffective on January 1, 2010, when not using roaming services, our subscribers include basecustomers incur usage charges plus, where applicable, an additional component reflectingin the form of either local usage charges or, for outgoing domestic and international long distance tariffs. When using roaming services, subscribers incur a roaming charge instead of the base usage charges, plus applicablecalls, domestic and international long distance charges. When using domestic roaming services, our customers incur either domestic roaming usage charges or, for outgoing international long distance calls, international long distance charges. When using international roaming services, our customers incur 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. We also have flexible long distance tariff plans distinguishing between day time and night time usage, and offer tailored service plans based upon customer requirements as well as our network resources.

Our tariffs are subject to regulation by various government authorities, including the MIIT, the National Development and Reform Commission and the relevant price regulatory authorities in Mainland China. As a general matter, the actual price range in each service area is proposed by a network operator in that service area and must be approved by the relevant price regulatory authorities in that service area. In addition, base usage charges, monthly fees, maximum domestic roaming usage charges and maximum domestic andapplicable long distance tariffs (other than tariffs for Internet Protocol, or IP, phone calls) are also determined generally by the MIIT in consultation with the National Development and Reform Commission. In August 2005, the MII amended its tariff regulations relating to certain telecommunications services, which resulted in network operators having more flexibility in setting, among other things, their domestic and international long distance tariffs and domestic roaming usage charges, provided that these tariffs and charges do not exceed the respective maximum tariffs it determined in consultation with the National Development and Reform Commission and that the tariff plans are filed with the MII (and, currently, with the MIIT) and the National Development and Reform Commission or, in some cases, the relevant price regulatory authorities at the provincial level.

The MIIT has continued encouraging mobile telecommunications operators in Mainland China to implement the caller-party-pays regime. In April 2007, officials from the MIIregime and the National Development and Reform Commission had indicated that the caller-party-pays regime would be phased in within approximately two years. As a result, mobile telecommunications operators, including us, have been gradually implementing the caller-party-pays regime. In particular, allAll of the new calling plan packages that we have been offering in the PRC since the beginning of 2007 are based on tariffs substantially equivalent to the caller-party-pays regime. We expect decreases in tariffs to generally result in usage volume increases.

In March 2008, the MII reduced the maximum domestic roaming usage charges that a mobile telecommunications services provider may charge on roaming services. However, we expect thatIn December 2009, the decrease inPRC regulators further promulgated policies to eliminate domestic roaming usage charges will drive growth in voice volumeon outgoing international long distance calls when domestic roaming services are used, and to eliminate local usage charges on outgoing domestic and that growth in voice volume usage will help partially offset the negative impact from declininginternational long distance calls when roaming charges.services are not used.

We offer our subscriberscustomers a variety of tariff packages that have different monthly fees, levels of basic usage and charges for usage exceeding the covered basic usage, voice value-added services, data services and other features. In general, the higher the monthly fee of a tariff package, the greater the price concession we offer. The tariff packages often incorporate different complimentary voice value-added services and data services packages.

Given the rapid growth in mobile penetration rates and increased competition, in order to remain competitive in terms of price and performance with other mobile telecommunications operators, we provide certain discounts and promotional offers in and during certain service areas and call periods targeting various customers. These discounts and promotional offers mainly include rewards for the pre-payment of fees, free trials of voice value-added services or data services, tariff discounts during off-peak hours and in low-traffic areas, and tariff discounts for specified call recipients.

Interconnection

Interconnection refers to various arrangements that permit the connection of our networks to other mobile or fixed-line networks. These agreements provide for the sharing and settlement of revenues from the baselocal usage charges and, if applicable, roaming usage charges and domestic and international long distance charges.

Our networks interconnect with the networks of other operators, which enables our subscriberscustomers to communicate with the subscriberscustomers of those operators and to make and receive 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 standardized from province to province.

Roaming

We provide roaming services to our subscribers,customers, which allow them to access our mobile telecommunications services while they are physically outside of their registered service area or in the coverage areas of other mobile telecommunications networks in other countries and regions with which we have roaming arrangements. As of December 31, 2008,2009, our GSM global roaming services covered 237 countries and regions, while our general packet radio service, or GPRS, global roaming services coverage was extended to 179182 countries and regions.

A mobile subscribercustomer using domestic roaming services is charged at our per-minute roaming charge (insteadusage charges or, for outgoing international long distance calls, international long distance charges. A mobile customer using international roaming services incur charges based on tariffs that vary depending on whether it is an incoming call or an outgoing call and on the destination of the base usage charge) for both incoming and outgoing calls, plus applicable long distance charges.call. In recent years, our international and domestic roaming usage charges have generally declined, resulting in lower average revenue per minute from roaming services. In March 2008, the PRC regulators further reduced the maximum rate at which a mobile telecommunications services provider may charge on domestic roaming services. In December 2009, the PRC regulators further promulgated policies to eliminate domestic roaming usage charges on outgoing international long distance calls when domestic roaming services are used. We believe that the decrease in roaming usage charges helped drive growth in voice volume usage and that growth in voice volume usage helped partially offset the negative impact of the decline in roaming usage charges.

Research and Development

Our research and development efforts, undertaken jointly by our research institute and other relevant departments and business units, primarily focus on:

SOFTBANK Corp., Vodafone International Holdings B.V., Cellco Partnership (doing business as Verizon Wireless) and we have formedjointly invested in JIL to promote the development of new mobile technologies, applications and services, particularly the rapidly growing area of mobile Internet services.

We have applied for a number of patents in Mainland China. Moreover, we have submitted to international standardization organizations a number of contributions, many of which have been accepted. In light of the increasingly competitive and rapidly evolving telecommunications market in Mainland China, we expect to continue to devote resources to the research and development of new products, services and technology applications.

Sales and Customer Services

Sales Channels. We offer our services through an extensive network of proprietary sales outlets and retail outlets. In addition to providing retail sales and network connection services, most of our proprietary sales outlets also offer differentiated services to subscriberscustomers under different service brands, including billing information and payment collection, services consultation, handset repair and other customer services. Furthermore, most of our proprietary sales outlets provide training and service demonstrations to retail outlets. The retail outlets offer our services according to agency agreements with us. In connection with these sales, all applicable fees payable after initial connection are paid to us. Moreover, we offer certain online services to our customers, including, among others, subscription of voice value-added services, change of tariff plans, credit loading for pre-paid services and certain wireless data services, and redemption of “GoTone” points. Furthermore, we have enhanced our service capabilities in 2008 through the expansion and optimization of our proprietary sales channels, the expansion of online sales and marketing channels and the integration of the resources relating to sales and marketing channels in the community. The number of our proprietary sales outlets totaled approximately 53,000 as of December 31, 2009, as compared to 47,000 as of December 31, 2008, as compared to 42,000 as of December 31, 2007.2008. 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 Mainland China to showcase our services and products, particularly our wireless data services, and to facilitate certain sales and marketing activities.

Market Segmentation Strategy.Strategy. As subscribers’customers’ demands for mobile telecommunications become more varied and complex, we have conducted research on market segmentation and have launched brands and products which cater to the specific needs of different subscribercustomer groups. We mainly promote three brands, each with a different focus. “GoTone” targets high to middle-end subscribers,customers, “Easy own” targets the mass market and the “M-Zone” brand targets the young user group through the integration of voice and data services, in each case supported by a series of tailored service packages.

Moreover, we provide differentiated applications and services to our corporate customers under customized service contracts. As of December 31, 2008,2009, we had signed service contracts with approximately 2.332.8 million corporate customers, and individual customers served under these service contracts with corporate accounts accounted for approximately 28.1%35.4% of our total subscribers.customers. With the expansion of our corporate customer base, we also seek to provide customized total solutions to these corporate customers in response to their particular requirements.

Furthermore, we have developed customized products and service packages in response to the unique consumption characteristics of rural areas, such as the “Easy own Village-only Card”, small denomination top-ups, over-the-air recharging and the Agricultural Information Service, and have developed advertising and distribution channels unique to the rural markets to promote and expand our business in the rural areas. We have also encouraged handset producers to introduce inexpensive handsets with moderate functions to lower the barrier of using mobile phones in the rural areas.

Strategies Relating to 3G Services.ServicesBased on. In 2009, we commenced the principleoperation of integrated business development, we seek to leverage our existing competitive advantages in branding, tariff, services and sales channels to promote our 3G services. Withservices by leasing wireless network capacity from CMCC. We have been focusing on the integration of the core components of our 2G and 3G networks we will focus onby employing new mechanisms, new standards and new measurements and by promoting dual-mode handsets,the integration of networks, businesses and applications, which will allowhave enabled our 2G customers to upgrade to our 3G services without changing their SIM cards or mobile telephone numbers or SIM cards or requiring re-registration. In addition, we will enhancehave enhanced our efforts to market the special features ofnew 3G businesses, products and applications, including through our voice, broadband data and value-added businesses, to individuals, families, corporations and those in need of industry information productsproducts. CMCC has also created an incentive fund to promote the joint research and development of TD-SCDMA terminals and chipsets with relevant manufacturers, which has contributed to the development of the TD-SCDMA industry chain. We intend to further expand our 3G services by, developing dual-mode data cards, netbooksamong other things, leveraging the support from the PRC government in terms of land use, frequency resources and notebook computers equippedconstruction of wireless cities. We also intend to continue to partner with data modules, home Internet access gatewaysorganizations within and information terminals.outside the PRC on the development of TD-LTE.

Customer Services.Services.Our customer support service centers offer 24-hour staff-answering and automatic-answering service hotlines in Mainland China, dealing with customer enquiries regarding services and billing, as well as handling customer complaints. In order to retain high-value and corporate customers and enhance customer satisfaction, we offer a series of personalized and differentiated services targeted at high-value and corporate customers, including dedicated account executives, on-site visits and systems for collecting comments and handling complaints.

In 2008,2009, we continued to optimize our customer service processes to remove service bottlenecks, resulting in sustained improvement in customer services and achieving a steady improvement inbroad customer satisfaction levels. Overall customer satisfaction rate reached 81.31% in 2008.satisfaction.

Customer Retention.Retention. Due to increasing competition, we place great emphasis on customer retention. Our strategy is to attract and retain high-value customers by providing high quality services. We have implemented a “Customer Point Reward Program”, which is a bonus point-based scheme that rewards customers according to their service consumption, loyalty and payment history. This represents an important measure by us to retain high-value customers. Customers are identified and grouped as “GoTone Diamond”, “GoTone Gold” and “GoTone Silver” card members according to their respective value contribution and points accrued. Different levels of membership entitle members to different privileges. Customers in these classifications are eligible to receive targeted rewards, including some of our own products and services, as well as those of our business partners. In 2008,2009, we further differentiated our “GoTone” service and enhanced customer loyalty of our “GoTone” service through the targeted allocation of marketing resources. In addition, we offer special services to our “GoTone” members, including cross-region services, airport VIP services, hospital VIP services, golf clubs and handset service clubs.

In developing our “M-Zone” brand, we focused on expanding our subscribercustomer base, offering new services and gaining recognition as symbol of youth culture. We enhanced our brand image and the number of customers increased as a result of our increased advertising efforts and expansion of new businesses, including the launch of brand alliances and the implementation of product and service upgrades.

In addition, we further enhanced customer loyalty through a series of efforts in 20082009 including, among others, developing our portfolio of products, increasing services and industry penetration, selectively providing handset subsidies, allocating more resources to the fast-growing new businesses and optimizing management systems and procedures.

Churn Management.Management. We have devised internal monitoring systems to detect subscriberscustomers who are prone to discontinue their subscriptions. In particular, our churn alert system prompts customer service representatives to proactively approach those subscribers,customers, and customers who have recently discontinued their service, to improve customer relations and minimize churn.

Credit Control.Control. We have implemented subscribercustomer registration procedures, such as identity checks for individual customers and information checks for corporate customers, to assist in credit control. In certain situations, we require our subscriberscustomers to pay an advance deposit representing a pre-determined amount of usage charges before certain telecommunications services are activated. The actual usage charges incurred are verified against the balance of the amount deposited at regular intervals on a daily basis and, if there are unusual circumstances, additional measures will be implemented. Direct debit services are available in each geographical area. The accounts of contract subscriberscustomers are required to be settled on a monthly basis, and a late payment fee is imposed on each subscribercustomer whose account balance is not settled by the monthly due date. If the subscriber’scustomer’s account remains overdue, the subscriber’scustomer’s services will be deactivated and such subscribercustomer must pay all overdue amounts, including applicable late payment fees, to reactivate services. To further control credit risk, we have expanded our service offerings that require subscriberscustomers to pre-pay for services. As a result, a majority of our existing subscriberscustomers pre-pay for our services. We make an allowance for doubtful accounts based on our assessment of the recoverability of accounts receivable.

Services Relating to the 2008 Beijing Olympics. We were the sole mobile telecommunications services partner for the 2008 Beijing Olympics, and successfully provided uninterrupted communications support and services during the games. We were able to provide mobile telecommunications transmissions on a real time basis for the release of information relating to the 2008 Beijing Olympics via SMS, “Color Ring” and MMS. In addition, we were able to provide quality services to international roaming customers during the Olympics by cooperating with foreign mobile operators to provide diversified services to their customers roaming to Mainland China. Success in serving the Olympics helped improve our business and service offerings and enhance our brand value.

Corporate Social Responsibility.Responsibility. We are committed to fulfilling our responsibility to the community. We have focused on energy conservation and environmental protection by implementing a “Green Action Plan” in many aspects of our operations. We have also strived to build an “informatized” society, help eliminate the perceived digital divide, care for the underprivileged and proactively support public welfare initiatives. When natural disasters such as severe snow storms and earthquakes hit Mainland China in 2008, we reacted with timely and effective telecommunications support and services and relief efforts. In 2008, we became the first and only company from Mainland China to be listed on the Dow Jones Sustainability Indexes, or DJSI, a recognition of our corporate social responsibility performance.performance, and were again listed on the DJSI in 2009. We have started issuing Corporate Social Responsibility Reports since 2007.

Information Systems

Our information systems primarily consist of a network management system, a business operation 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 operation 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, customer service and network failure handling 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.

Trademark

We market our services under the “CHINA MOBILE” trademark, which is the trademark we use throughout Mainland China. “CHINA MOBILE” is a registered trademark in the PRC owned by our parent company, CMCC. In July 2002, we entered into a non-exclusive licensing agreement with CMCC for the use of the “CHINA MOBILE” name and logo by us and our operating subsidiaries. Under this agreement, no license fee was payable by us for the first five years from the effective date of the trademark registration in the PRC and any fees payable after that would be no less favorable than fees paid by other affiliates of CMCC. In addition, each of the companies that we acquired in July 2004, other than Jingyi, entered into a licensing agreement with CMCC for the use of the “CHINA MOBILE” name and logo. Under these agreements, no license fee was payable by us to CMCC until December 31, 2007. On January 1, 2008, we entered into a new trademark license agreement to replace ourthe then existing trademark license agreements with CMCC. Under the new trademark license agreement, we and our operating subsidiaries have a non-exclusive right to use the “CHINA MOBILE” trademark in Mainland China and Hong Kong. No license fee is payable by us to CMCC under the agreement until December 31, 2012.

In addition, the “CHINA MOBILE” name has been registered as a trademark by CMCC in Australia, Brunei, Canada, Hong Kong, India, Indonesia, Macau, New Zealand, South Korea, Taiwan, Thailand, the United States, Vietnam, South Africa and Vietnam.Yemen. Furthermore, CMCC has filed applications to register the “CHINA MOBILE” name and logo as a trademark in Malaysia Nigeria,and Pakistan, the Philippines, South Africa and Yemen in connection with certain goods and services. CMCC has also registered the “CHINA MOBILE” name and logo as a trademark under the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks.

Mobile Telecommunications Networks

Prior to January 7, 2009, we offered mobile telecommunications services using the GSM standard. Each of our GSM networks consists of:

Starting from January 7, 2009, in addition to offering mobile telecommunications services using the GSM standard, or the 2G standard, we also offer mobile telecommunications services using the TD-SCDMA standard, or the 3G standard. Our 3G business shares a core mobile telecommunications network with our 2G business. Over the past several years, we have performed a number of technological improvements and upgrading to our core mobile telecommunications network, which has evolved into an integrated network that is capable of supporting transmissions using both the 2G standard and the 3G standard. Our core mobile telecommunications network is capable of IP-based soft switching, which makes it possible to evolve into a network that supports the next generation technology. Other key network components for our 3G business include Node Bs, which contain radio transmitters and receivers that communicate directly with mobile terminals, and radio network controllers, which carry out radio resources management and are responsible for controlling the Node Bs that are connected to them.

Network Capacity Expansion and Optimization Plans. Our subscriberscustomers currently use our 2G services, our 3G services, or both. 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 and 3G services, and expanding the coverage and capacity of our integrated network. Our network expansion and optimization plans depend to a large extent upon the availability of sufficient spectrum.

Spectrum.Spectrum. A mobile telecommunications network’s capacity is to a certain extent limited by the amount of frequency spectrum available. For our GSM network, the MIIT has allocated a total of 4440 MHz of spectrum to be used for transmission and reception nationwide, respectively, in the 900 MHz frequency band and the 1800 MHz frequency bandbands to our parent company, CMCC. In connection with our 3G business, the MIIT has allocated to CMCC a total of 35 MHz of spectrum to be used for transmissionnationwide coverage, and reception nationwide, respectively, in the 1880an additional 50 MHz frequency band and the 2010 MHz frequency band. Under the existing agreement between CMCC and us, we have the exclusive right among mobile telecommunications services providersof spectrum to use the allocated frequency spectrum in Mainland China.be used for indoor coverage.

Transmission Infrastructure.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.

Leased Lines.Lines.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 leased through CMCC from other providers, CMCC collects leasing fees from us and pays fees to the relevant transmission line providers.

Network Operations and Maintenance.Maintenance. 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. Currently, most technical difficulties relating to the networks are resolved by our staff, although our equipment suppliers also provide back-up maintenance and technical support.

Base Stations.Stations. In urban areas, our base stations are located mostly on existing structures, typically at the top of tall buildings. In rural areas, masts are often constructed for locating base stations. Typically, base stations are of limited size, as base station equipment does not generally require significant space. As of the end of 2008,2009, we had approximately 390,000more than 460,000 2G base stations. We anticipate that we will need a significant number of new base stations in connection with the expansion of our mobile telecommunications networks. We cannot assure you that we will be able to obtain the requisite number of base station sites on reasonable commercial terms.

In connection with the 3G wireless network capacity that we lease from CMCC, CMCC currently plans to construct 160,000had over 80,000 3G base stations providing 3G network coverage to all prefecture-level cities in Mainland China byoperation as of the end of 2011.2009.

Equipment Suppliers. We select our principal suppliers from leading international and domestic manufacturers of mobile telecommunications equipment and in accordance with technical standards set by the MIIT. In 2008,2009, we purchased our networks equipment primarily from Huawei Technologies, Ericsson, Nokia, Alcatel-LucentZTE and Motorola.

Strategic Alliance with Vodafone

We have a strategic alliance agreement with Vodafone Group Plc, or Vodafone, which provides for a number of cooperation arrangements between us and Vodafone, including:

Under the agreement, Vodafone is our preferred partner in the above mentioned areas, and we are Vodafone’s sole strategic partner in China for all areas of potential cooperation within the scope of the strategic alliance. As part of the alliance, Dr. J. Brian Clark, Chief Executive in the Asia Pacific Regionan executive officer of Vodafone has served as a Non-Executive Director of our company fromsince August 2003 until March 2005. Sir Julian Michael Horn-Smith, Deputy Chief Executive Officer and Executive Director of Vodafone, served as a Non-Executive Director of our company from March 2005 until June 2006. Mr. Paul Michael Donovan, Vodafone’s Chief Executive Officer for EMAPA of Vodafone, served as a Non-Executive Director of our company from June 2006 until December 2008.2003. Mr. Nicholas Jonathan Read, Vodafone’s Regional Chief Executive Officer for Asia Pacific and Middle East Region, currently serves as a Non-Executive Director of our company, having joined our board of directors as a Non-Executive Director in March 2009. See “Item 6. Directors, Senior Management and Employees.” As of May 31, 2009,April 30, 2010, Vodafone held approximately 3.21%3.20% of our outstanding shares.

We believe that the strategic alliance with Vodafone has enhanced our strengths in the telecommunications market in Mainland China and will better position us to pursue further expansion opportunities globally. In particular, this alliance has enabled us to have frequent and broad exchanges of expertise and market information. Moreover, this strategic alliance will enable Vodafone and us to share information and establish benchmarks to better assess and enhance each other’s performance, thereby better positioning both parties in the global telecommunications market.

Strategic Alliance Agreement with Phoenix and Memorandum of Understanding with News Corporation and STAR Group Limited

On June 8, 2006, we entered into a strategic alliance agreement with Phoenix Satellite Television Holdings Limited, or Phoenix, a leading satellite television operator broadcasting into Mainland China, pursuant to which we and Phoenix will cooperate in, among other areas, the joint development, marketing and delivery of innovative wireless content, products, services and applications. We currently have a number of cooperation initiatives underway with Phoenix.

In addition, we entered into a memorandum of understanding with News Corporation and STAR Group Limited on June 8, 2006 relating to a potential long-term wireless media strategic partnership as well as the exploring of various areas of cooperation, which may include the aggregation, development and marketing of multimedia content and other wireless value-added services, by combining the strength and experience of one of the largest media companies in the world and one of the largest mobile telecommunications companies in the world. We are currently working with News Corporation and STAR Group Limited on a number of cooperation initiatives.

Proposed Investment in, and Strategic Cooperation with, Far EasTone

On April 29, 2009, we entered into a share subscription agreement with Far EasTone Telecommunications Co., Ltd., or Far EasTone, one of the major mobile telecommunications operators in Taiwan, pursuant to which we would acquire 12% of the enlarged issued share capital of Far EasTone for an aggregate amount of approximately 17,773.6 million New Taiwan dollars (approximately RMB3,701.4RMB3,797.2 million or US$542.5556.3 million, based on the respective exchange rate of 4.80184.6807 New Taiwan dollars = RMB1.00 or 32.7631.95 New Taiwan dollars = US$1.00 as of December 31, 2008)2009), subject to certain adjustments. Completion of the share subscription is subject to certain conditions, including the obtaining of all necessary regulatory approvals.

Concurrent with the share subscription agreement, we also entered into a strategic cooperation agreement with Far EasTone, which would become effective upon the completion of the share subscription. Pursuant to the strategic cooperation agreement, we and Far EasTone would pursue long-term broad-based cooperation for the purpose of our mutual strategic development in a number of areas, including joint purchases, roaming, data and value-added businesses and network and technology advancement. We believe our strategic cooperation with Far EasTone would facilitate the expansion of our business in Mainland China, Hong Kong and Taiwan and help us expand the range of our services to individuals that travel between, and businesses that operate in, Mainland China and Taiwan. The strategic cooperation would also enable us to accumulate advanced technological and operational expertise in areas such as 3G and next generation technology.

Proposed Investment in, and Strategic Cooperation with, SPD Bank

On March 10, 2010, Guangdong Mobile, our wholly-owned subsidiary, entered into a share subscription agreement with SPD Bank, pursuant to which Guangdong Mobile would acquire 20% of the enlarged issued share capital of SPD Bank for an aggregate amount of RMB39,801.4 million (approximately US$5,831 million). Completion of the share subscription is subject to customary closing conditions, including the obtaining of all necessary regulatory approvals. SPD Bank is a joint-stock commercial bank incorporated in the PRC, with its shares listed on the Shanghai Stock Exchange.

Concurrent with the share subscription agreement, we and Guangdong Mobile also entered into a memorandum of understanding on strategic cooperation with SPD Bank with the intention of entering into a strategic cooperation agreement within three months after the completion of the share subscription. It is contemplated under the memorandum of understanding on strategic cooperation that we, Guangdong Mobile and SPD Bank will closely cooperate in the joint development of mobile finance and mobile e-Commerce businesses in Mainland China. The scope of cooperation will include, but will not be limited to, the joint development of mobile phone payments business, mobile bank cards business, mobile funds transfer business and other forms of mobile finance and mobile e-Commerce businesses, the joint research and development of the bundling of other forms of mobile communications and finance products as well as the joint in-depth research and development of new technologies and new products of future mobile finance and mobile e-Commerce businesses. The parties also agree to promote their cooperation in the areas of basic banking services and basic telecommunications services, and leverage on their respective competitive advantages to bring synergies in terms of branding, customers, channels and network platform resources into full play.

Competition

We compete with other telecommunications services providers. We are one of the three licensed mobile telecommunications services providers in Mainland China. The PRC government encourages orderly and fair competition in the telecommunications industry in Mainland China. In particular, the PRC government has extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors to us. We may also face intense competition from existing operators from time to time. Our competitors launch, from time to time, promotional offers, such as handset subsidies and tariff packages, to attract customers.

In May 2008, in order to optimize the allocation of telecommunications resources in the PRC and improve the competitive landscape, the MIIT, the National Development and Reform Commission and the Ministry of Finance jointly announced a policy initiative to further reform the PRC telecommunications industry by encouraging the formation of three telecommunications services providers of comparable scale and standing, each with nationwide network resources, full-service capabilities and competitive strength, by way of a series of restructuring transactions. See “Item 4. Information on the Company — The History and Development of the Company — Industry Restructuring and Changes in Our Shareholding Structure.”

After completion of the industry restructuring in January 2009, China Telecom and China Unicom, each of which is now operating a mobile telecommunications network, may benefithave been benefiting from, among other things, broader subscribercustomer bases, more extensive networks, greater financial and other resources and more comprehensive technological capabilities.capabilities, as compared to their customer bases, networks, resources and technological capabilities prior to the industry restructuring. These factors have intensified, and could further intensify, competition. Our market share was approximately 70.6% as of December 31, 2009, as compared to 72.4% as of December 31, 2008. In addition, pursuant to the policy initiative announced in May 2008, China Telecom and China Unicom have each become full-service telecommunications services providers that operate both fixed-line telecommunications networks and mobile telecommunications networks. We cannot predict at this point in time the precise impact that the formation of full-service telecommunications services providers may have on our business and prospects. Our competitors may also benefit from any asymmetrical regulatory measures that may be adopted by the PRC government from time to time. See “Risk Factors — Risks Relating to Our Business — Competition from other telecommunications services providers may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations” and “Risk Factors — Risks Relating to Our Business — Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.”

Nonetheless, given the subscribercustomer growth potential in the central and western regions of Mainland China, as well as in the small and medium-sized cities and rural areas, we believe there is substantial growth potential for our mobile telecommunications business. In particular, we believe that the industry restructuring that commenced in 2008 will help optimize the allocation of telecommunications resources and help create a fair, orderly, transparent and healthy telecommunications market. Despite existing and future competition, we believe the following factors have contributed to our subscribercustomer quality compared to that of our existing competitors and we seek to continue developing our competitive advantages on the basis of these factors:

World Trade Organization

The People’s Republic of China officially joined the WTO on December 11, 2001. Under the Protocol on the Accession of the People’s Republic of China, dated as of November 11, 2001, China agreed to gradually open various segments and regions of its telecommunications market to foreign investment. Pursuant to this accession protocol, both the percentage of ownership of Sino-foreign joint ventures offering telecommunications services in China and the regions where those joint ventures are permitted to offer telecommunications services have been gradually expanded over a period of six years. Under the accession protocol, the telecommunications market is divided into fixed-line services, mobile voice and data services, paging services and value-added services. Value-added services include electronic mail, voice mail and online information and database retrieval. By December 11, 2004, foreign investors were permitted to own up to 49% of joint ventures that offer mobile voice and data services in 17 cities in Mainland China. By December 11, 2006, such joint ventures were permitted to offer mobile voice and data services in Mainland China without any geographic restrictions.

The table below summarizes the foreign ownership restrictions for telecommunications joint ventures in Mainland China as well as applicable geographic restrictions:

Foreign Ownership Percentage and Geographic Restrictions

for Foreign-Funded Telecommunications Enterprises

Source: the official website of the MIIT.

Regulation

The mobile telecommunications industry in Mainland China is highly regulated. Regulations issued or implemented by the State Council, the MIIT and other relevant government authorities including the National Development and Reform Commission and the Ministry of Commerce, which consolidated the functions of the former Ministry of Foreign Trade and Economic Cooperation, encompass all key aspects of mobile 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 leadership of the State Council, is responsible for, among other things:

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. It has been reported that under the legislation agenda of the Eleventh National People’s Congress of the PRC, the draft telecommunications law, which has been included in the legislative agenda of the State Council for 2010, is to be submitted forcurrently under review by the Standing Committee of the Eleventh National People’s Congress of the PRC within its term.State Council. 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 Mainland 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 Mainland China, we cannot predict what the ultimate nature and scope of the telecommunications law will be.

Entry into the Industry.Industry. Under the current regulations, operators of mobile telecommunications networks, providers of other basic telecommunications services such as local and long distance fixed-line telephone services, and value-added service providers whose telecommunications services cover two or more provinces, directly-administered municipalities or autonomous regions in Mainland 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 telecommunications services in all provinces, directly-administered municipalities and autonomous regions in China.

On December 11, 2001, China officially joined the WTO. To implement China’s commitments under the WTO, the Provisions on the Administration of Foreign-Funded Telecommunications Enterprises became effective on January 1, 2002, permitting foreign investment in joint ventures that provide telecommunications services in Mainland China. However, these investments will presumably bear no direct relation to the issuance of licenses to providers of telecommunications services in Mainland 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 September 2008, 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 (including radio paging services).

The MIIT has promulgated the Administrative Measures for the Licensing of Telecommunication Business Operations, which became effective on April 10, 2009. Those regulations apply to the application for, and examination and approval of, telecommunications business licenses in the PRC.

Spectrum Usage.Usage. 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 National Development and Reform Commission and the Ministry of Finance, 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 telecommunications network operator based on the bandwidth of the frequency used and the number of base stations within the relevant operator’s networks.

Spectrum usage fees for GSM networks are currently charged at the annual rate of RMB17 million per MHz frequency for the 900 MHz frequency band and RMB15 million per MHz frequency for the 1800 MHz frequency band. Spectrum usage fees are charged on the basis that upward and downward frequencies are separately charged. The relevant regulatory authorities in China may review these fee arrangements in the future.

Numbering Resources.Resources. The MIIT is responsible for the administration of the telecommunications numbering resources within Mainland China, including the telecommunications network numbers and subscribercustomer numbers. The use of numbering resources by any telecommunications operator is subject to the approval by the MIIT. In January 2003, the MII issued Measures on Administration of Telecommunications Network Numbering Resources. In accordance with these measures, the telecommunications network numbering resources are owned by the state, and a user of numbering resources is required to pay a usage fee to the state

starting March 1, 2003. The measures also provide for procedures for application for the use, upgrade and adjustment of numbering resources by telecommunications operators. In December 2004, the MII, the Ministry of Finance and the National Development and Reform Commission jointly issued the Provisional Administrative Measures with respect to the Collection of the Usage Fee of Telecommunications Network Numbering Resources, under which telecommunications companies are required to pay a usage fee to the PRC government by the 10th day of the first month of each quarter. Moreover, under these provisional measures, mobile telecommunications companies are required to pay an annual usage fee of RMB12 million for each network number.

Tariff Setting.Setting.Our tariffs are subject to regulation by various government authorities, including the MIIT, the National Development and Reform Commission and the relevant price regulatory authorities in Mainland China. Under the current telecommunications regulations, telecommunications tariffs are categorized into market based tariffs, government guidance tariffs and government standard tariffs. As a general matter, the actual price range in each service area is proposed by a network operator in that service area and must be approved by the relevant price regulatory authorities in that service area. In addition, baselocal usage charges, monthly fees, maximum domestic roaming usage charges and maximum domestic and long distance tariffs (other than tariffs for IP phone calls) are also determined generally by the MIIT in consultation with the National Development and Reform Commission. In August 2005, the MII amended its tariff regulations relating to certain telecommunications services, which resulted in network operators having more flexibility in setting, among other things, their domestic and international long distance tariffs and domestic roaming usage charges, provided that these tariffs and charges do not exceed the respective maximum tariffs it determined in consultation with the National Development and Reform Commission and that the tariff plans are filed with the MII (and, currently, with the MIIT) and the National Development and Reform Commission or, in some cases, the relevant price regulatory authorities at the provincial level. See “Item 4. Information on the Company — Business Overview — Tariffs.”

The MIIT has continued encouraging mobile telecommunications operators in Mainland China to implement the caller-party-pays regime. In April 2007, officials from the MIIregime and the National Development and Reform Commission had indicated that the caller-party-pays regime would be phased in within approximately two years. As a result, mobile telecommunications operators, including us, have been gradually implementing the caller-party-pays regime. In particular, allAll of the new calling plan packages that we have been offering in the PRC since the beginning of 2007 are based on tariffs substantially equivalent to the caller-party-pays regime.

In March 2008, the MII reduced the maximum domestic roaming charges that a mobile telecommunications services provider may charge on roaming services. Our international roaming usage charges are set in accordance with agreements between CMCC and the relevant foreign mobile operators. Under the current telecommunications regulations, tariffs for those telecommunications businesses that are considered fully competitive may be set by the service providers as market based tariffs.

Interconnection Arrangements and Lease Line Arrangements.Arrangements. Under the current telecommunications regulations, parties seeking interconnection must enter into an interconnection agreement and file such agreement with the MIIT. 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 “— Technical Standards” below. The MIIT also 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.

Technical Standards.Standards. Certain regulatory authorities in Mainland China, including the MIIT, set technical standards and control the type and quality of mobile telecommunications 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.Investment. We may be required to obtain approvals from relevant regulatory authorities in Mainland China with respect to some of our major investment projects, including mobile telecommunications network development projects.

Sharing of Telecommunications Infrastructure.Infrastructure. In September 2008, the MIIT and the SASAC jointly issued a Notice on Promoting Joint Construction and Sharing of Telecommunications Infrastructure, which stipulates that the telecommunications operators in Mainland China must share existing transmission towers and masts and jointly construct future transmission towers and masts. The joint notice also requires the telecommunications operators to share and jointly construct base station facilities and transmission lines to the extent feasible, and prohibits exclusive arrangements in the leasing of third-party sites and premises. CMCC, China Unicom and China Telecom have subsequently entered into an agreement to set out the framework under which they will jointly construct and share relevant telecommunications infrastructure.

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. Specifically, the Three-Network Convergence Policy will be initially carried out on a trial basis in selective geographic locations between 2010 and 2012 and further implemented on a larger scale in 2013 through 2015. The PRC government may amend the relevant regulations or promulgate new regulations in order to implement the Three-Network Convergence Policy. The new policy decision is expected to enhance the development of information industries, satisfy consumers’ diverse demands, promote domestic consumption and form new areas for economic growth.

Employees

As of December 31, 2006, 2007, 2008 and 2008,2009, we had 111,998, 127,959, 138,368 and 138,368145,954 employees, respectively. Substantially all of our employees are located in Mainland China. The employees as of December 31, 20082009 are classified in the following table. Approximately 82.3%84.0% of our permanent employees have college or graduate degrees.

We provide benefits to certain employees, including housing, retirement benefits and hospital, maternity, disability and dependent medical care benefits. Most of our employees are members of a labor association. We have not experienced any strikes, slowdowns or labor disputes that have interfered with our operations to date, and we believe that our relations with our employees are good.

The number of workers sourced by third parties that provided services to us reached 267,394281,306 as of December 31, 2008.2009.

Properties, 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. For some of our properties under construction, we have not obtained land use right certificates or property title certificates. However, these deficiencies do not affect our use of these properties. We believe that all of our owned and leased properties are well maintained and are suitable and adequate for their present use.

Item 4A. Unresolved Staff Comments.

None.

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. Our consolidated financial statements included elsewhere in this annual report on Form 20-F reflect, among other things, the results of Hong Kong Mobile from January 5, 2006, the date of its acquisition.

Overview of Our Operations

During 2006,In 2007, 2008 and 2008,2009, our subscribercustomer base and voice usage volume continued to experience significant growth. Our average net increase in number of subscriberscustomers exceeded 7.35.4 million per month during the period2009 and our total subscribercustomer base reached 457.3522.3 million as of December 31, 2008.2009. Our total voice usage volume increased by 45.3%34.2% from 1,252.1 billion minutes in 2006 to 1,818.9 billion minutes in 2007 and by 34.2% to 2,441.3 billion minutes in 2008.2008, and by 19.6% to 2,918.7 billion minutes in 2009. As a result, our total operating revenue increased by 20.9%15.2% from RMB295,358 million in 2006 to RMB356,959RMB357,477 million in 2007 to RMB411,810 million in 2008, and by 15.5%9.8% to RMB412,343RMB452,103 million (US$60,439

66,233 million) in 2008.2009. Our value-added business continued to grow, accounting for 25.7%27.5% and 27.5%29.1% of our total operating revenue in 20072008 and 2008,2009, respectively. Our total operating expenses increased by 14.5%15.3% from RMB203,433 million in 2006 to RMB232,891RMB233,764 million in 2007 to RMB269,415 million in 2008, and by 15.8%13.2% to RMB269,728RMB305,095 million (US$39,53544,697 million) in 2008.2009. Our profit attributable to equity shareholders increased by 31.9%30.0% from RMB66,026 million in 2006 to RMB87,062RMB86,623 million in 2007 to RMB112,627 million in 2008, and by 29.6%2.3% to RMB112,793RMB115,166 million (US$16,53316,872 million) in 2008.2009.

However, changes inIn 2009, the macro economic environment arisingChinese economy began to recover from the aftermath of the global financial crisis. The global financial crisis, havehowever, had an adverse impact on Mainland China, as well as onthe demand for our telecommunications services, in particular during the first half of 2009. Furthermore, following the restructuring of the telecommunications industry and the issuance of Mainland China. In particular, Mainland China’s GDP growth rate dropped to 9.0% in 2008 and to 6.1%the 3G licenses, market competition in the first quarter of 2009, with the slowdown in economic growth reflected more markedly in certain regions of the country, such as the coastal cities that historically contributed a significant portion of our operating revenue. Exports from Mainland China also dropped significantly, with a corresponding decrease in production activities by export-oriented enterprises. With the general slowdown of production activitiestelecommunications industry in Mainland China a large number of migratory workers became unemployed and had to leave the cities and return to their hometown in the rural areas of Mainland China. All of these factors, among others, contributed to a slowdown in the growth in demand for telecommunications services in Mainland China. Furthermore, ashas intensified. As the mobile penetration rate in Mainland China reached 48.5%56.3% as of December 31, 2008,2009, the mobile telecommunications markets in some of the larger citieseconomically developed regions of Mainland China also began to show signs of saturation. The effects of the recent restructuring of the telecommunications industry, which has drastically changed the competitive landscape for the telecommunications industry in Mainland China, have also begun to emerge. As a result, our subscribercustomer base and operating revenue grew at a lower rateslower pace in the fourth quarter of 2008 and the first quarter of 2009 than in prior years. Moreover, we have experienced a general decline inWe intend to continue to cope with market and industry challenges that may arise from time to time by leveraging our tariffs in recent years. As a result of all these factors, the growth in our operating revenue in the first quarter of 2009 was significantly less than that for the same period in 2008. Nonetheless,customer base, network quality, brand name and execution capabilities, among other things. Moreover, given the overall mobile penetration rate in Mainland China, and particularly the mobile penetration rate in rural areas, we believe that there remains potential for continued growth in our subscriber base.customer base and our business.

We have been a mobile telecommunications services provider in China since our inception in 1997, with our operations initially concentrated in Guangdong and Zhejiang provinces. Between 1998 and 2004, we significantly expanded the geographic coverage of operations to all 31 provinces, autonomous regions and directly-administered municipalities in Mainland China by acquiring various mobile telecommunications operations from CMCC. Furthermore, we acquired all of the issued and outstanding shares of Hong Kong Mobile in 2006, which enabled us to expand into the Hong Kong mobile telecommunications market. These acquisitions have significantly expanded our subscribercustomer base, increased the usage of our services and greatly enlarged the size of our target markets, and have materially increased our operating revenue and expenses as well as materially affected our financial condition and results of operations. See “Item 4. Information on the Company — The History and Development of the Company — Expansion Through Acquisitions.”

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 interconnection and transmission line leasing arrangements, technology and equipment standards and capital investment, as described in more detail under “Item 4. Information on the Company — Business Overview — Regulation.” In addition, we believe that the industry restructuring that took place pursuant to the PRC government’s policy initiative to further reform the telecommunications industry announced in May 2008 has had, and will continue to have, a significant impact on the competitive landscape of the telecommunications industry in Mainland China, and competition from other telecommunications services providers may intensify. See “Risk Factors — Risks Relating to Our Business — Competition from other telecommunications services providers may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations” and “Risk Factors — Risks Relating to Our Business — Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.” Our financial performance is also subject to the economic and social conditions in Mainland China and foreign currency exchange rate fluctuations.China. See “Risk Factors — Risks Relating to Mainland China — An economic slowdown in Mainland China may reduce the demand for our services and have a material adverse effect on our financial condition, results of operations and business prospects” and “Risk Factors — Risks Relating to Mainland China — Fluctuations in exchange rates could materially and adversely affect our financial results.prospects.”

Operating Arrangements We Entered Into Over the Last Several Years Have Materially Impacted Our Financial Results

Our current organizational structure was established pursuant to the restructuring completed in September 1997 in preparation for our initial public offering and our subsequent acquisitions of regional mobile telecommunications companies and other telecommunications assets in Mainland China and Hong Kong. In connection with these transactions, we entered into various operating arrangements to facilitate the transfer of the operations to us, to integrate these operations within our operating structure and to improve our overall operational efficiency. These arrangements included:

The original terms of our agreements relating to interconnection, leased lines and roaming have been revised as a result of tariff adjustments by the government and/or commercial negotiation with the relevant parties.

Our financial results reflect the impact of the above arrangements as of the dates they became effective. These arrangements and changes have had a material impact on our overall results of operations.

Our Operating Arrangements with CMCC Have Affected and May Continue to Affect Our Financial Results

Following the completion of our acquisition of the telecommunications assets from CMCC in July 2004, the domestic roaming arrangements between CMCC and us were terminated and we no longer lease any inter-provincial transmission lines from CMCC. Moreover, we entered into an agreement with CMCC on July 1, 2004 with respect to, among other things, inter-provincial interconnection and roaming, international interconnection and roaming, and inter-provincial and international transmission lines leasing. Pursuant to this agreement, for the inter-provincial transmission lines we leased from other providers through CMCC, CMCC maintains its existing 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. Moreover, under this agreement, CMCC: (i) maintains its existing settlement arrangements with respect to international interconnection and roaming with the relevant telecommunications services providers in foreign countries and regions; and (ii) collects the relevant usage fees and other fees from us or the relevant telecommunications services providers in foreign countries and regions and pays fees to the relevant mobile telecommunications services providers in foreign countries and regions or us, as the case may be. In addition, under this agreement, with respect to the inter-provincial interconnection with the relevant telecommunications services providers in Mainland China, CMCC maintains its existing inter-provincial interconnection arrangements with the relevant telecommunications services providers in Mainland China, and collects the relevant usage fees and other fees from us and pays fees to the relevant telecommunications services providers in Mainland China.

On November 6, 2009, we entered into a telecommunications services cooperation agreement with CMCC, pursuant to which we and CMCC would provide customer development services to each other by utilizing our respective sales channels and resources, and would cooperate in the provision of basic telecommunications services and value-added telecommunications services to customers of each other.

Tariff Adjustments

The PRC government has introduced a wide range of tariff adjustments since 2001, which include, among other things, the shortening of the billing unit for long distance charges (other than for IP-based long distance call services), from one minute to six seconds, the general reduction in domestic and international long distance call rates, the elimination of various surcharges and connection fees charged to new subscriberscustomers and a general reduction in leased line tariffs. Moreover, we are allowed to offer our subscriberscustomers a variety of tariff packages which have different monthly fees, levels of basic usage and charges for usage exceeding the covered basic usage, voice value-added services, data services and other features. In general, the higher the monthly fee of a tariff package, the greater the price concession we offer. The tariff packages often include complimentary voice value-added services and data services packages.

In addition, mobile telecommunications operators in Mainland China have been gradually implementing a caller-party-pays regime. Moreover, our international and domestic roaming charges have generally declined in recent years. In March 2008, See “Item 4. Information on the PRC regulators further reduced the price ceiling on domestic roaming services. However, we expect that decreases in tariffs will drive growth in voice volume usage and that growth in voice volume usage will help partially offset the negative impact from declining tariffs.Company — Business Overview — Tariffs.”

Our average revenue per minute has generally decreased in recent years as tariffs have also generally decreased. However, the growth in voice usage volume that has resulted from the general decline in tariffs has helped partially offset the adverse effect of tariff decreases on our revenue.

Our ARPU Has Declined and May Further Decline in the Future

Our ARPU decreased from RMB90 in 2006 to RMB83 in 2008 and to RMB73RMB77 in the first quarter of 2009, primarily due to the fact that nearly half of our new subscriberscustomers are from less affluent rural areas and most of them are relatively low-endlow-usage users. This decline was also due to the gradual implementation of the tariff adjustments. As we continue our “lower ARPU, lower MOU, lower cost” strategyto expand in the rural areas, and with the continued implementation of the tariff adjustments, we expect that our ARPU will further decline.

Critical Accounting Policies and Estimates

The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with IFRS for the years ended December 31, 2006, 2007, 2008 and 2008.2009. 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 provision for customer point reward program, allowance for doubtful accounts, depreciation, amortization of other intangible assets, impairment of property, plant and equipment, goodwill and other intangible assets arising from acquisitions and fair value of share options granted. Actual results may differ from those estimates under different assumptions or conditions.

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.

Provision for Customer Point Reward Program

We invite our subscriberscustomers to participate in a customer point reward program, or the Reward Program, which provides subscriberscustomers the option of electing to receive free telecommunications services or other non-cash gifts. The level of bonus points earned under the Reward Program varies depending on the subscribers’customers’ service consumption, loyalty and payment history.

In prior years, we accounted for the obligation to provide free or discounted services or goods offered to our customers under the Reward Program using the incremental costs method. The estimated incremental costs of providing thesecost to provide free rewards are expensed in the consolidated income statementsor discounted services or goods was recognized as expenses and are accrued as a current liability on the consolidated balance sheets based on: (i) the number of subscribers who are qualifiedwhen customers were entitled to exercise their redemption right at period/year end and the estimated rate of redemptions based on past experience; (ii) the estimated number of subscribers who have no right to redeem the incentives at period/year end, but who will ultimately earn and claimbonus points. When customers redeemed awards under the Reward Program; and (iii) type of incentives that subscribers will select for redemption based on past experience. As subscribers redeem rewards or their entitlements expire,expired, the provision isincremental cost liability was reduced accordingly.accordingly to reflect the outstanding obligations.

Starting from January 1, 2009, as a result of the adoption of IFRIC Interpretation 13, we accounted for the reward points as a separately identifiable component of the sales transactions in which the points are granted. We allocate the consideration received with respect to a sales transaction to reward points by reference to the estimated fair value of the points and defer the revenue recognition until such reward points are redeemed by the customer or the points expire. Detailed information about IFRIC Interpretation 13 and its impact on our financial reporting are set forth in note 2(ii) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts based upon evaluation of the recoverability of the accounts receivable and other receivables at each balance sheet date. We base our estimates on the aging of our accounts receivable and other receivable balances and our historical write-off experience, net of recoveries. If the financial condition of our customers were to deteriorate, additional allowances may be required.

Depreciation

Depreciation is based on the estimated useful lives of items of property, plant and equipment, less their estimated residual value, if any, to write off the cost of these items over their estimated useful lives. We review the estimated useful lives and residual values of our assets annually. The useful lives and residual values of each class of our telecommunications assets are reviewed periodically and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method is changed to reflect the changed pattern. The depreciation expense for future period is adjusted if there are significant changes from previous estimates. We determine the useful life of our telecommunications assets based on our historical experience with similar assets, expected usage of the assets and anticipated technological changes with respect to those assets. 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 1(h) to our consolidated financial statements included elsewhere in this annual report

on Form 20-F. In 2006, taking into consideration the evolution of wireless mobile technologies, we revised the estimated useful life of our second generation mobile telecommunications technology, or 2G, wireless network equipment from seven years to five years, which was estimated to increase our depreciation expense by approximately RMB11,451 million in 2006. In 2007, in order to cope with our increasing business demand, we commenced a full scale investment in soft switching center equipment that enables us to carry out more efficient network management, which triggered a change in useful lives of relevant equipment. As a result, we revised the estimated useful lives of our switching center equipment (excluding soft switching center equipment) from seven years to five years in 2007, which was estimated to increase our depreciation expense by approximately RMB6,516 million in 2007. We did not revise the estimated useful lives of our property, plant and equipment in 2008.2008 or 2009.

Amortization of Other Intangible Assets

Amortization of other intangible assets is calculated to write off the cost of items of other intangible assets using the straight-line method over their estimated useful lives unless such lives are indefinite. We review the estimated useful lives of other intangible assets annually in order to determine the amount of amortization expense to be recorded during any reporting period. The useful lives are based on the estimated period over which future economic benefits will be received by us and taking into account any unexpected adverse changes in circumstances or events. The amortization expense for future periods is adjusted if there are significant changes from previous estimates. We did not revise the estimated useful lives of other intangible assets in 2006, 2007, 2008 or 2008.2009. Our policies regarding accounting for these assets are set forth in note 1(f) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Impairment of Property, Plant and Equipment, Goodwill and Other Intangible Assets

Our property, plant and equipment, consisting primarily of telecommunications transceivers, switching centers, transmission and other network equipment, comprise a significant portion of our total assets. Changes in technology or industry conditions may cause the estimated period of use or the value of these assets to change. Property, plant and equipment and other intangible assets subject to amortization, are reviewed for impairment at least annually or whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill and other intangible assets that have 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 net selling pricefair value less costs to sell 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, which 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 approximation 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 additional impairment charges or reversal of impairment in future periods. ThereNo impairment of property, plant and equipment, goodwill and other intangible assets was no changerecorded in these estimates in 2006, 2007, 2008 or 2008.2009.

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 1(j) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Fair Value of Share Options Granted

The fair value of share options granted to our employees is recognized as an employee cost with a corresponding increase in a capital reserve within equity and is measured based on a binomial lattice model. In applying the model, we estimate the expected volatility based on the historical volatility of our share price (calculated based on the weighted average remaining life of the share option), adjusted for any expected changes (based on publicly available information) to future volatility. We also estimate expected dividends based on our historical dividends and planned dividend payout ratio, if any. Changes in the subjective input assumptions could materially affect the fair value estimate of share options. No share options were granted by us in 2007, 2008 or 2009.

Results of Operations

The following table sets forth selected consolidated statements of comprehensive income statement data for the periodsyears indicated:

Year Ended December 31, 20082009 Compared to Year Ended December 31, 20072008

Operating Revenue.Revenue. Our operating revenue is mainly derived from usage fees, monthly fees and value-added services fees. Usage fees include standard local usage fees for airtime and applicable domestic and international long distance charges receivable from subscriberscustomers for the use of our mobile telecommunications networks and facilities, and fees in respect of roaming out calls made by our subscriberscustomers outside their registered service areas. Value-added services fees are mainly derived from voice value-added services, SMS and non-SMS data business. Other operating revenue mainly represents interconnection revenue.

Operating revenue increased 15.5%9.8% from RMB356,959RMB411,810 million in 20072008 to RMB412,343RMB452,103 million (US$60,43966,233 million) in 2008.2009. This increase was primarily due to the continued expansion in our subscribercustomer base, notably in rural areas in Mainland China, and the continued growth in voice usage volume and value-added businesses. Our total number of subscriberscustomers was approximately 522.3 million as of December 31, 2009, compared to approximately 457.3 million as of December 31, 2008, compared to approximately 369.3 million as of December 31, 2007.2008.

Revenue from usage fees increased 15.2%9.8% from RMB226,488RMB260,542 million in 20072008 to RMB260,889RMB285,971 million (US$38,24041,895 million) in 2008.2009. This increase principally resulted from the continued economic growth in the PRC, the continued expansion in our subscribercustomer base and the further increase in our voice usage volume during 2008.2009. Although our average revenue per minute reflected a downward trend from RMB0.196 in 2007 to RMB0.169 in 2008 to RMB0.155 in 2009, this decline was partially offset by higher growth in our voice usage volume in 2008.2009. With the gradual phase-inintensified market competition following the restructuring of the caller-party-pays regime,telecommunications industry and with further declines in domestic roaming charges and the

general trend of declining tariffs, our average revenue per minute may continue to decline in future periods, but we currently expect that growth in our voice usage volume will help partially offset the impact of these developments on our operating revenue. As a percentage of operating revenue, usage fees slightly decreased from 63.5% in 2007 toremained stable at 63.3% in 2008.2008 and 2009.

Revenue from monthly fees decreased 13.2%18.8% from RMB20,856RMB18,066 million in 20072008 to RMB18,096RMB14,661 million (US$2,6522,148 million) in 2008.2009. This decrease was mainly due to the fact that most of our currentcustomers subscribed to our service packages, dowhich generally did not have a monthly fee component. As a percentage of operating revenue, monthly fees decreased from 5.8% in 2007 to 4.4% in 2008.2008 to 3.2% in 2009.

Set forth below is a table summarizing the results of our value-added services for the periods indicated.

Revenue from value-added services increased 23.8%16.0% from RMB91,609RMB113,288 million in 20072008 to RMB113,444RMB131,434 million (US$16,62819,255 million) in 2008.2009. This increase was mainly due to our continued efforts in providing customers with diversified and personalized value-added services to meet their preferences and needs. Our value-added services include voice value-added services, SMS and non-SMS data business. Revenue generated from SMS reached RMB50,384RMB53,557 million in 2008,2009, as compared to RMB41,935RMB50,318 million in 2007,2008, representing an increase of 20.1%6.4%. In addition, revenue generated from Color Ring“Color Ring” and WAP,Handset Internet Access, which areform part of our non-SMS data business, grew substantially by 21.9%7.4% and 42.9%41.3% to RMB14,380RMB15,413 million and RMB12,991RMB18,338 million, respectively in 2008,2009, as compared to the previous year. The expansion of our subscribercustomer base was an additional growth driver for our value-added services. As a percentage of operating revenue, value-added services fees increased from 25.7% in 2007 to 27.5% in 2008.2008 to 29.1% in 2009. We expect our value-added business to continue to grow, in particular SMS and non-SMS data business, over the next several years.

Other operating revenue increased 10.6%slightly by 0.6% from RMB18,006RMB19,914 million in 20072008 to RMB19,914RMB20,037 million (US$2,9192,935 million) in 2008. This increase principally resulted from an increase in interconnection revenue as a result of the continued expansion in our subscriber base and an incremental increase in voice usage.2009. As a percentage of operating revenue, other operating revenue decreased from 5.0% in 2007 to 4.8% in 2008.2008 to 4.4% in 2009.

Our ARPU decreased from RMB89 in 2007 to RMB83 in 2008 to RMB77 in 2009, primarily due to the fact that nearly half of our new subscriberscustomers are from less affluent rural areas and most of them are relatively low-endlow-usage users of mobile telecommunications services. This decline was also due to the gradual implementation of the tariff adjustments.

Operating Expenses.Expenses. Operating expenses include leased line expenses, interconnection expenses, depreciation expenses relating to our mobile telecommunications network and other property, plant and equipment, personnel expenses and other operating expenses. Other operating expenses primarily consist of selling and promotion expenses, operating lease charges, maintenance expenses, impairment loss for doubtful accounts, disposal and write-off of property, plant and equipment that have been demolished and disconnected from our existing network, spectrum charges and numbering resources fees, labor service expenses, amortization of other intangible assets and other miscellaneous expenses.

Operating expenses increased 15.8%13.2% from RMB232,891RMB269,415 million in 2008 to RMB305,095 million (US$44,697 million) in 2009. This increase, notably in other operating expenses, particularly in selling and promotion expenses and maintenance expenses, was generally in line with the continued growth in our customer base and our ongoing efforts to deliver better quality services and to cope with intensified competition. Our operating expenses increased at a lower rate in 2009 as compared to 2008, reflecting our continued efforts to control our operating expenses in 2009.

Leased line expenses increased 13.8% from RMB2,641 million in 2008 to RMB3,006 million (US$440 million) in 2009. This increase reflected payments of RMB222 million to CMCC in connection with the lease of its TD-SCDMA network capacity. As a percentage of operating expenses, leased line expenses remained stable at 1.0% in 2008 and 2009.

Interconnection expenses decreased 1.9% from RMB22,264 million in 2008 to RMB21,847million (US$3,201 million) in 2009. This decrease was mainly due to our marketing strategy to reorganize and re-route traffic volume, which led to a lower proportion of inter-network traffic volume. Interconnection expenses as a percentage of operating expenses decreased from 8.3% in 2008 to 7.2% in 2009.

Depreciation expense increased 12.1% from RMB71,509 million in 2008 to RMB80,179 million (US$11,746 million) in 2009. This increase was mainly due to our continuous capital expenditures for the construction of our mobile telecommunications networks, support systems, transmission and structural facilities and the development of new technologies and new business. As a percentage of operating expenses, depreciation expense decreased from 26.5% in 2008 to 26.3% in 2009.

Personnel expenses increased 7.6% from RMB19,960 million in 2008 to RMB21,480 million (US$3,147 million) in 2009. This increase was primarily due to an increase in headcount from 138,368 at the end of 2008 to 145,954 at the end of 2009. As a percentage of operating expenses, personnel expenses slightly decreased from 7.4% in 2008 to 7.0% in 2009.

Other operating expenses increased 16.7% from RMB153,041 million in 2008 to RMB178,583 million (US$26,163 million) in 2009. This increase was primarily due to increased selling and promotion expenses in 2009 as a result of our continued efforts in promoting brand development, rewarding and retaining our existing and high-value customers, and improving customer service quality with an aim towards enhancing customer loyalty. Our selling and promotion expenses may further increase if industry competition continues to intensify and adversely affects our customer growth and customers retention, and increases our customer acquisition and retention costs. The increase in other operating expenses was also due to an increase in maintenance expenses and operating lease charges incurred in 2009, principally as a result of our continued investments in our network equipment and facilities. In addition, other operating expenses included impairment loss for doubtful accounts of RMB4,503 million in 2009 compared to RMB4,385 million in 2008, operating lease charges of RMB8,751 million in 2009 compared to RMB8,314 million in 2008, write-off of property, plant and equipment of RMB4,493 million in 2009 compared to RMB3,250 million in 2008, and labor service expenses for services provided by third parties of RMB13,577 million in 2009 compared to RMB10,156 million in 2008. As a percentage of operating expenses, other operating expenses increased from 56.8% in 2008 to 58.5% in 2009. For more information on our other operating expenses, see note 5 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 3.2% from RMB142,395 million in 2008 to RMB147,008 million (US$21,537 million) in 2009, and operating margin (profit from operations as a percentage of operating revenue) slightly decreased from 34.6% in 2008 to 32.5% in 2009.

Other Net Income. Other net income represents primarily gross profit from sales of SIM cards and handsets. Other net income decreased 17.6% from RMB2,159 million in 2008 to RMB1,780 million (US$261 million) in 2009. This decrease was principally due to the declining sales of SIM cards and handsets.

Non-Operating Net Income. Non-operating net income decreased by 30.6% from RMB517 million in 2008 to RMB359 million (US$53 million) in 2009. Non-operating net income is mainly comprised of penalty income and other miscellaneous non-operating income.

Interest Income. Interest income decreased 1.0% from RMB6,002 million in 2008 to RMB5,940 million (US$870 million) in 2009. The lower interest income in 2009 was primarily due to the lower interest rate in 2009. See also “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Liquidity.”

Finance Costs. Finance costs decreased 19.8% from RMB1,550 million in 2008 to RMB1,243 million (US$182 million) in 2009. This decrease was primarily due to a decrease in average interest rate for deferred consideration payable, which represented the balance of the purchase consideration payable to our immediate holding company in connection with our acquisitions of eight regional mobile telecommunications companies in 2002 and ten regional mobile telecommunications companies and other telecommunications assets in 2004. The average interest rate for deferred consideration payable decreased in July 2008 from 5.41% to 3.28% and remained at 3.28% throughout 2009. In addition, the interest rate for bonds bearing interest at a floating rate decreased in June 2009 from 5.89% to 4.00%. In 2009, the average interest rate that we paid on our outstanding borrowings was approximately 3.70%, as compared to 4.61% in 2008.

Profit before Taxation. As a result of the foregoing, profit before tax increased 2.9% from RMB149,523 million in 2008 to RMB153,836 million (US$22,537 million) in 2009.

Taxation. Our income tax expense increased 4.6% from RMB36,735 million in 2008 to RMB38,413 million (US$5,628 million) in 2009. This increase was mainly due to an increase in our profit before taxation and the phase-out of certain tax benefits enjoyed by some of our subsidiaries. Our effective tax rate was 24.6% in 2008 and 25.0% in 2009, respectively.

Profit attributable to equity shareholders. As a result of the foregoing and after taking into account minority interests, profit attributable to equity shareholders increased 2.3% from RMB112,627 million in 2008 to RMB115,166 million (US$16,872 million) in 2009. Net profit margin (profit attributable to equity shareholders as a percentage of operating revenue) decreased from 27.3% in 2008 to 25.5% in 2009.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Operating Revenue. Our operating revenue is mainly derived from usage fees, monthly fees and value-added services fees. Usage fees include standard local usage fees for airtime and applicable domestic and international long distance charges receivable from customers for the use of our mobile telecommunications networks and facilities, and fees in respect of roaming out calls made by our customers outside their registered service areas. Value-added services fees are mainly derived from voice value-added services, SMS and non-SMS data business. Other operating revenue mainly represents interconnection revenue.

Operating revenue increased 15.2% from RMB357,477 million in 2007 to RMB269,728RMB411,810 million (US$39,535 million)in 2008. This increase was primarily due to the continued expansion in our customer base, notably in rural areas in Mainland China, and the continued growth in voice usage volume and value-added businesses. Our total number of customers was approximately 457.3 million as of December 31, 2008, compared to approximately 369.3 million as of December 31, 2007.

Revenue from usage fees increased 14.9% from RMB226,820 million in 2007 to RMB260,542 million in 2008. This increase principally resulted from the continued economic growth in the PRC, the continued expansion in our customer base and the further increase in our voice usage volume during 2008. Although our average revenue per minute reflected a downward trend from RMB0.197 in 2007 to RMB0.169 in 2008, this decline was partially offset by higher growth in our voice usage volume in 2008. With the gradual phase-in of the caller-party-pays regime, further declines in domestic roaming usage charges and the general trend of declining tariffs, our average revenue per minute may continue to decline in future periods, but we currently expect that growth in our voice usage volume will help partially offset the impact of these developments on our operating revenue. As a percentage of operating revenue, usage fees slightly decreased from 63.5% in 2007 to 63.3% in 2008.

Revenue from monthly fees decreased 13.6% from RMB20,907 million in 2007 to RMB18,066 million in 2008. This decrease was mainly due to the fact that most of our customers subscribed to our service packages, which generally did not have a monthly fee component. As a percentage of operating revenue, monthly fees decreased from 5.8% in 2007 to 4.4% in 2008.

Set forth below is a table summarizing the results of our value-added services for the periods indicated.

		Year Ended December 31,
		2007			2008
		(in millions of RMB)
Voice value-added business		19,447			21,728
SMS business		41,997			50,318
Non-SMS data business		30,300			41,242
Revenue from value-added services		91,744			113,288
Revenue from value-added services as a percentage of operating revenue		25.7	%		27.5	%

Revenue from value-added services increased 23.5% from RMB91,744 million in 2007 to RMB113,288 million in 2008. This increase was mainly due to our continued efforts in providing customers with diversified and personalized value-added services to meet their preferences and needs. Our value-added services include voice value-added services, SMS and non-SMS data business. Revenue generated from SMS reached RMB50,318 million in 2008, as compared to RMB41,997 million in 2007, representing an increase of 19.8%. In addition, revenue generated from Color Ring and Handset Internet Access, which form part of our non-SMS data business, grew substantially by 21.6% and 42.5% to RMB14,357 million and RMB12,977 million, respectively in 2008, as compared to the previous year. The expansion of our customer base was an additional growth driver for our value-added services. As a percentage of operating revenue, value-added services fees increased from 25.7% in 2007 to 27.5% in 2008. We expect our value-added business to continue to grow, in particular SMS and non-SMS data business, over the next several years.

Other operating revenue increased 10.6% from RMB18,006 million in 2007 to RMB19,914 million in 2008. This increase principally resulted from an increase in interconnection revenue as a result of the continued expansion in our customer base and an incremental increase in voice usage. As a percentage of operating revenue, other operating revenue decreased from 5.0% in 2007 to 4.8% in 2008.

Our ARPU decreased from RMB89 in 2007 to RMB83 in 2008, primarily due to the fact that nearly half of our new customers are from less affluent rural areas and most of them are relatively low-usage users of mobile telecommunications services. This decline was also due to the gradual implementation of the tariff adjustments.

Operating Expenses. Operating expenses include leased line expenses, interconnection expenses, depreciation expenses relating to our mobile telecommunications network and other property, plant and equipment, personnel expenses and other operating expenses. Other operating expenses primarily consist of selling and promotion expenses, operating lease charges, maintenance expenses, impairment loss for doubtful accounts, disposal and write-off of property, plant and equipment that have been demolished and disconnected from our existing network, spectrum charges and numbering resources fees, labor service expenses, amortization of other intangible assets and other miscellaneous expenses.

Operating expenses increased 15.3% from RMB233,764 million in 2007 to RMB269,415 million in 2008. This increase, notably in other operating expenses, particularly in selling and promotion expenses and maintenance expenses, was generally in line with the continued growth in our subscribercustomer base and our ongoing efforts to deliver better quality services.

Total leasedLeased line paymentsexpenses increased 13.3% from RMB2,330 million in 2007 to RMB2,641 million (US$387 million) in 2008. This increase was largely a result of an increase in leased lines for Internet use. As a percentage of operating expenses, total leased line paymentsexpenses remained stable at 1.0% in 2007 and 2008.

Interconnection expenses increased 3.6% from RMB21,500 million in 2007 to RMB22,264 million (US$3,263 million) in 2008. This increase was mainly due to the continued increase in our subscribercustomer base and voice usage volume. Interconnection expenses as a percentage of operating expenses decreased from 9.2% in 2007 to 8.3% in 2008.

Depreciation expense increased 6.2% from RMB67,354 million in 2007 to RMB71,509 million (US$10,481 million) in 2008. This increase was mainly due to the increase in capital expenditures for the construction of our mobile telecommunications networks, support systems, transmission and structural facilities and the development of new technologies and new business. As a percentage of operating expenses, depreciation expense decreased from 28.9%28.8% in 2007 to 26.5% in 2008.

Personnel expenses increased 9.2% from RMB18,277 million in 2007 to RMB19,960 million (US$2,926 million) in 2008. This increase was primarily due to an increase in headcount from 127,959 at the end of 2007 to 138,368 at the end of 2008. As a percentage of operating expenses, personnel expenses slightly decreased from 7.9%7.8% in 2007 to 7.4% in 2008.

Other operating expenses increased 24.2%23.1% from RMB123,430RMB124,303 million in 2007 to RMB153,354RMB153,041 million (US$22,478 million) in 2008. This increase was primarily due to increased selling and promotion expenses in 2008 as a result of our continued efforts in promoting brand development, rewarding and retaining our existing and high-value customers, and improving customer service quality with an aim towards enhancing customer loyalty. Our selling and promotion expenses may further increase if industry competition continues to intensify and adversely affects our subscribercustomer growth and customers retention, and increases our customer acquisition and retention costs. The increase in other operating expenses was also due to an increase in maintenance expenses and operating lease charges incurred in 2008, principally as a result of our continued investments in our network equipment and facilities. In addition, other operating expenses included impairment loss for doubtful accounts of RMB4,385 million in 2008 compared to RMB3,872 million in 2007, write-off of property, plant and equipment of RMB3,250 million in 2008 compared to RMB2,788 million in 2007, and labor service expenses for services provided by third parties of RMB10,156 million in 2008 compared to RMB7,535 million in 2007. As a percentage of operating expenses, other operating expenses increased from 53.0%53.2% in 2007 to 56.8% in 2008. For more information on our other operating expenses, see note 5 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Profit from Operations.Operations. As a result of the foregoing, profit from operations increased 14.9%15.1% from RMB124,068RMB123,713 million in 2007 to RMB142,615RMB142,395 million (US$20,904 million) in 2008, but operating margin (profit from operations as a percentage of operating revenue) slightly decreased from 34.8%remained stable at 34.6% in 2007 to 34.6% inand 2008.

Other Net Income.Income. Other net income represents primarily gross profit from sales of SIM cards and handsets. Other net income decreased 7.1% from RMB2,323 million in 2007 to RMB2,159 million (US$316 million) in 2008. This decrease was principally due to the declining selling prices of SIM cards and handsets.

Non-Operating Net Income.Income. Non-operating net income decreased by 21.3% from RMB657 million in 2007 to RMB517 million (US$76 million) in 2008. Non-operating net income is mainly comprised of penalty income and other miscellaneous non-operating income.

Interest Income.Income. Interest income increased 49.5% from RMB4,015 million in 2007 to RMB6,002 million (US$880 million) in 2008. The higher interest income in 2008 was primarily due to our larger cash balances as a result of the continued improvement in our cash generating capability, which was reflected in the increase of our net cash from operating activities from year to year. See also “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Liquidity.”

Finance Costs.Costs. Finance costs decreased 15.1% from RMB1,825 million in 2007 to RMB1,550 million (US$227 million) in 2008. This decrease was primarily due to a decrease in average interest rate for deferred consideration payable, which represented the balance of the purchase consideration payable to our immediate holding company in connection with our acquisitions of eight regional mobile telecommunications companies in 2002 and ten regional mobile telecommunications companies and other telecommunications assets in 2004. The average interest rate for deferred consideration payable decreased in July 2008 from 5.41% to 3.28%. In 2008, the average interest rate that we paid on our outstanding borrowings was approximately 4.61%, as compared to 5.19% in 2007.

Profit before Taxation.Taxation. As a result of the foregoing, profit before tax increased 15.9%16.0% from RMB129,238RMB128,883 million in 2007 to RMB149,743RMB149,523 million (US$21,948 million) in 2008.

Taxation.Taxation. Our income tax expense decreased 12.5%12.8% from RMB42,059RMB42,143 million in 2007 to RMB36,789RMB36,735 million (US$5,392 million) in 2008. This decrease was mainly due to a reduction in the statutory enterprise income tax rate from 33% to 25% in accordance with the new PRC Enterprise Income Tax Law, which took effect on January 1, 2008.

Profit attributable to equity shareholders.shareholders. As a result of the foregoing and after taking into account minority interests, profit attributable to equity shareholders increased 29.6%30.0% from RMB87,062RMB86,623 million in 2007 to RMB112,793RMB112,627 million (US$16,533 million) in 2008. Net profit margin (profit attributable to equity shareholders as a percentage of operating revenue) increased from 24.4%24.2% in 2007 to 27.4%27.3% in 2008. In particular, the growth in our profit attributable to equity shareholders from 2007 to 2008 benefited from the reduction in the statutory enterprise income tax rate in accordance with the new PRC Enterprise Income Tax Law, as well as the increase in depreciation charges in 2007 as a result of our revision in the estimated useful lives of switching center equipment.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Operating Revenue. Our operating revenue is mainly derived from usage fees, monthly fees and value-added services fees. Usage fees include standard local usage fees for airtime and applicable domestic and international long distance charges receivable from subscribers for the use of our mobile telecommunications networks and facilities, and fees in respect of roaming out calls made by our subscribers outside their registered service areas. Value-added services fees are mainly derived from voice value-added services, SMS and non-SMS data business. Other operating revenue mainly represents interconnection revenue.

Operating revenue increased 20.9% from RMB295,358 million in 2006 to RMB356,959 million in 2007. This increase was primarily due to the continued expansion in our subscriber base, notably in rural areas in Mainland China, the continued growth in voice usage volume and the rapid expansion of our value-added business. Our total number of subscribers was approximately 369.3 million as of December 31, 2007, compared to approximately 301.2 million as of December 31, 2006.

Revenue from usage fees increased 19.4% from RMB189,710 million in 2006 to RMB226,488 million in 2007. This increase principally resulted from the continued rapid economic development in the PRC, the continued expansion in our subscriber base and the further increase in our voice usage volume during 2007. Although our average revenue per minute reflected a downward trend from RMB0.236 in 2006 to RMB0.196 in 2007, such decline stimulated a strong growth in our voice usage volume that helped partially offset the adverse effect of the lower average revenue per minute on our overall revenue from usage fees in 2007. As a percentage of operating revenue, usage fees slightly decreased from 64.2% in 2006 to 63.5% in 2007.

Revenue from monthly fees decreased 3.6% from RMB21,629 million in 2006 to RMB20,856 million in 2007. This decrease was mainly due to the impact of service package substitution at point of access for specific bundles of features and services with no charge of monthly fees. As a percentage of operating revenue, monthly fees decreased from 7.3% in 2006 to 5.8% in 2007.

Set forth below is a table summarizing the results of our value-added services for the periods indicated.

Revenue from value-added services increased 32.2% from RMB69,309 million in 2006 to RMB91,609 million in 2007. This increase was mainly due to our efforts in promoting and developing our value-added services by providing customers with diversified and personalized value-added services. Our value-added services include voice value-added services, SMS and non-SMS data business. Revenue generated from SMS reached RMB41,935 million in 2007, as compared to RMB32,201 million in 2006, representing an increase of 30.2%. At the same time, revenue generated from Color Ring and WAP, which are part of our non-SMS data business, grew substantially by 74.7% and 32.3% to RMB11,794 million and RMB9,094 million, respectively, as compared to the previous year. In addition, the expansion of our subscriber base was another growth driver for our value-added services. As a percentage of operating revenue, value-added services fees increased from 23.5% in 2006 to 25.7% in 2007.

Other operating revenue increased 22.4% from RMB14,710 million in 2006 to RMB18,006 million in 2007. This increase resulted principally from an increase in interconnection revenue as a result of the expansion in our subscriber base and an incremental increase in voice usage. As a percentage of operating revenue, other operating revenue remained stable at 5.0% in 2006 and 2007.

Our ARPU decreased from RMB90 in 2006 to RMB89 in 2007, primarily due to the fact that nearly half of our new subscribers were from less affluent rural areas and most of them were relatively low-end users.

Operating Expenses. Operating expenses include leased line expenses, interconnection expenses, depreciation expenses relating to our mobile telecommunications network and other property, plant and equipment, personnel expenses and other operating expenses. Other operating expenses primarily consist of selling and promotion expenses, allowance for doubtful accounts, operating lease charges, network maintenance, labor service expenses, debt collection fees, spectrum charges and numbering resources charges, write-off of property, plant and equipment, amortization of other intangible assets and other miscellaneous expenses.

Operating expenses increased 14.5% from RMB203,433 million in 2006 to RMB232,891 million in 2007. This increase, notably in sales and marketing expenses and network maintenance expenses, was generally in line with our continued business expansion in order to service our increased subscriber base and to deliver better quality services.

Total leased line payments decreased 4.9% from RMB2,451 million in 2006 to RMB2,330 million in 2007. This decrease was largely a result of the termination of surplus leased lines as we continued to use more self-constructed and jointly constructed transmission lines and also augmented our networks to increase their efficiency. As a percentage of operating expenses, total leased line payments decreased from 1.2% in 2006 to 1.0% in 2007.

Interconnection expenses increased 14.5% from RMB18,783 million in 2006 to RMB21,500 million in 2007. This increase was mainly due to the increase of subscriber base and voice usage volume. Interconnection expenses as a percentage of operating expenses remained relatively stable at 9.2% in 2006 and 2007.

Depreciation expense increased 4.3% from RMB64,574 million in 2006 to RMB67,354 million in 2007. This increase was mainly due to the increase in capital expenditures, which was partially offset by the effect of a reduced basis for calculating depreciation as a result of our substantial disposal and write-off of property, plant and equipment carried out in prior years. The revision in the estimated useful lives of switching center equipment (excluding soft switching center equipment) for 2007 resulted in additional depreciation charges of RMB6,516 million in 2007. As a percentage of operating expenses, depreciation expense decreased from 31.8% in 2006 to 28.9% in 2007.

Personnel expenses increased 8.4% from RMB16,853 million in 2006 to RMB18,277 million in 2007. This increase was primarily due to an increase in headcount from 111,998 at the end of 2006 to 127,959 at the end of 2007, partially offset by a reduction in share-based compensation expenses. As a percentage of operating expenses, personnel expenses slightly decreased from 8.3% in 2006 to 7.9% in 2007.

Other operating expenses increased 22.5% from RMB100,772 million in 2006 to RMB123,430 million in 2007. This increase was primarily due to the increased sales and marketing expenses in 2007 as a result of our efforts in promoting brand development, rewarding and retaining our existing and high-value customers, and improving customer service quality with an aim towards enhancing customer loyalty. The increase in other operating expenses was also due to an increase in network maintenance fee incurred in 2007. The increase in network maintenance fee was primarily due to an increase in the size of our network, as we sought to maintain our competitive advantages in network leadership and network quality. In addition, other operating expenses included labor service expenses of RMB7,535 million for services provided by third parties. As a percentage of operating expenses, other operating expenses increased from 49.5% in 2006 to 53.0% in 2007.

Profit from Operations. As a result of the foregoing, profit from operations increased 35.0% from RMB91,925 million in 2006 to RMB124,068 million in 2007, and operating margin (profit from operations as a percentage of operating revenue) increased from 31.1% in 2006 to 34.8% in 2007.

Other Net Income. Other net income represents primarily gross profit from sales of SIM cards, handsets and accessories. Other net income decreased 19.1% from RMB2,872 million in 2006 to RMB2,323 million in 2007. This decrease was principally due to the declining selling price of SIM cards and handsets.

Non-Operating Net Income. Non-operating net income was RMB657 million in 2007, as compared to RMB285 million in 2006. Non-operating net income is mainly comprised of unrealized exchange loss, penalty income and other miscellaneous non-operating income.

Interest Income. Interest income increased 54.2% from RMB2,604 million in 2006 to RMB4,015 million in 2007. The higher interest income in 2007 was primarily due to our larger cash balances as a result of the continued improvement in our cash generating capability, which was reflected in the increase of our net cash from operating activities from year to year. See also “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Liquidity.”

Finance Costs. Finance costs increased 20.9% from RMB1,510 million in 2006 to RMB1,825 million in 2007. This increase was primarily due to an increase in average interest rate for deferred consideration payable, which represented the balance of the purchase consideration payable to our immediate holding company in connection with our acquisition of the eight regional mobile telecommunications companies in 2002 and the ten regional mobile telecommunications companies and other telecommunications assets in 2004. The average interest rate for deferred consideration payable increased from 2.76% to 5.41% in July 2006 and has remained at 5.41% since then. In 2007, the average interest rate that we paid on our outstanding borrowings was approximately 5.19%, as compared to 4.11% in 2006.

Profit before Taxation. As a result of the foregoing, profit before tax increased 34.4% from RMB96,176 million in 2006 to RMB129,238 million in 2007.

Taxation. Our income tax expense increased 39.9% from RMB30,062 million in 2006 to RMB42,059 million in 2007. This increase was primarily due to an increase in our profit before tax. Our effective tax rate was 31.3% in 2006 and 32.5% in 2007, respectively. The increase in our effective tax rate was primarily due to the increase in deferred tax expenses recognized during the year resulting from the change in tax rate from 33% to 25%, in accordance with the new PRC Enterprise Income Tax Law enacted on March 16, 2007, for purposes of calculating deferred tax assets.

Profit attributable to equity shareholders. As a result of the foregoing and after taking into account minority interests, profit attributable to equity shareholders increased 31.9% from RMB66,026 million in 2006 to RMB87,062 million in 2007. This increase was primarily due to the growth in our subscriber base, new businesses, increased voice usage volume and economies of scale. Net profit margin (profit attributable to equity shareholders as a percentage of operating revenue) increased from 22.4% in 2006 to 24.4% in 2007.

Liquidity and Capital Resources.

Liquidity

Our principal source of liquidity is cash generated from our operations. As of December 31, 2008,2009, we had a working capital (current assets minus current liabilities) of RMB59,597RMB77,550 million (US$8,73511,361 million), compared to a working capital of RMB52,682RMB56,611 million as of December 31, 20072008 and a working capital of RMB30,900RMB49,916 million as of December 31, 2006.2007. The improvement in our working capital and cash and cash equivalent positions in 20082009 was primarily due to the increase in our profit from operations. As of December 31, 2006, 2007, 2008 and 2008,2009, accounts receivable totaled RMB7,153 million, RMB6,985 million, RMB6,913 million and RMB6,913RMB6,405 (US$1,013938 million), respectively. Short-term bank and other loans (including bonds and capitalThe current portion of our finance lease obligations)obligations as of December 31, 2006, 2007, 2008 and 20082009 were RMB3,064RMB68 million, RMB68 million and RMB68 million (US$10 million), respectively.

The following table summarizes certain cash flow information for the periods indicated.

		Year ended December 31,
		2007			2008			2009
		(in millions of RMB)
Net cash from operating activities		168,612			193,647			207,123
Net cash used in investing activities		(123,039	)		(139,026	)		(165,927	)
Net cash used in financing activities		(37,276	)		(45,684	)		(49,774	)
Net increase / (decrease) in cash and cash equivalents		8,297			8,937			(8,578	)

Net cash from operating activities increased 12.9%14.8% from RMB149,346 million in 2006 to RMB168,612 million in 2007 to RMB193,647 million in 2008, and further increased 14.8%7.0% to RMB193,647RMB207,123 million (US$28,38430,344 million) in 2008,2009, primarily reflecting the increase in our profit before taxation resulting from the continued expansion of our subscribercustomer base and the continued growth in voice usage and our value-added business.

Net cash used in investing activities increased 19.3% from RMB139,026 million in 2008 to RMB165,927 million (US$24,308 million) in 2009. This increase was primarily due to larger increase in deposits with banks of RMB54,780 million in 2009 compared to RMB21,148 million in 2008, which was partially offset by a decrease in capital expenditures of RMB5,502 million, and an increase in the amount of interest received of RMB1,045 million. Net cash used in investing activities increased 13.0% from RMB123,039 million in 2007 to RMB139,026 million (US$20,378 million) in 2008. This increase was primarily due to an increase in capital expenditures of RMB22,293 million, which was partially offset by a smaller increase in deposits with banks of RMB21,148 million in 2008 compared to RMB27,391 million in 2007, and an increase in the amount of interest received of RMB1,063 million.

Net cash used in investingfinancing activities increased 3.5%9.0% from RMB118,841RMB45,684 million in 20062008 to RMB123,039RMB49,774 million (US$7,292 million) in 2007.2009. This increase was primarily due to a larger dividend payment to shareholders in 2009 compared to 2008 and a decrease in the increase in capital expendituresamount of RMB21,554 million, which wasproceeds from issuance of shares under our share option scheme, partially offset by a smaller increasedecrease in depositsthe amount of interest paid on our outstanding bonds and deferred consideration in connection with banksour acquisitions of RMB27,391 millionregional mobile telecommunications companies in 2007 compared to RMB40,369 in 2006.

2002 and 2004. Net cash used in financing activities increased 22.6% from RMB37,276 million in 2007 to RMB45,684 million (US$6,696 million) in 2008. This increase was primarily due to a larger dividend payment to shareholders in 2008 compared to 2007 and a decrease in the amount of proceeds from issuance of shares under our share option scheme. Net cash used in financing activities in 2007 was also affected by our repayment of outstanding bonds with aggregate principal amount of RMB3,000 million. Net cash used in financing activities increased 58.0% from RMB23,587 million in 2006 to RMB37,276 million in 2007. This increase was primarily due to a larger dividend payment to shareholders in 2007 compared to 2006 and the repayment of RMB3,000 million aggregate principal amount of bonds.

Capital Expenditures

Capital expenditures incurred in 2006, 2007, 2008 and 20082009 were RMB86,988 million, RMB105,139 million, and RMB136,292 million and RMB129,367 million (US$19,97718,952 million), respectively. We incurred capital expenditures principally for the construction of our mobile telecommunications networks, support systems, transmission and structural facilities and the development of new technologies and new businesses. We increased our capital expenditures in 2008 primarily in an effort to meet increased demand on our network services resulting from the continued expansion of our subscribercustomer base, growth in voice usage volume and development of our value-added business. The level of our capital expenditures in 2009 decreased compared to 2008 were also affected by various reconstruction needs arisingprincipally due to the lower investment cost per traffic unit as a result of damages causedour efforts to implement more centralized, standardized and informatized management, as well as reflecting the needs of our network equipment and facilities by the severe winter weatherbusiness growth in the southern, central and eastern regions of Mainland China in early 2008 and the earthquake that struck Sichuan Province and certain other parts of Mainland China in May 2008.2009.

We estimate that we will incur capital expenditures of approximately RMB133.9RMB123.0 billion (US$19.6 billion) in 2009, RMB131.0 billion (US$19.218.0 billion) in 2010, and RMB110.5RMB98.0 billion (US$16.214.4 billion) in 2011.2011 and RMB80.4 billion (US$11.8 billion) in 2012. We expect that about 24%14% of our capital expenditures in 20092010 will be used in the construction of 2G wireless networks, of which approximately 70% will be applied to network construction in the rural areas.networks. The remaining capital expenditures will be used in the areas for 2G/3G integration, including core networks, development of new technologies and new businesses, construction of transmission facilities, support systems, structural facilities and others.

We have generally funded our capital requirements primarily with cash generated from operations, proceeds from equity and debt offerings and, to the extent necessary, short-term and long-term borrowings. We believe our available cash and cash generated from future operations will be sufficient to fund the capital expenditures and working capital necessary for the planned network expansion and continued growth of our mobile telecommunications operations through the end of 2009.2010.

We may seek to obtain additional sources of financing to fund our network expansion and possible future acquisitions, to the extent necessary.

Contractual Obligations and Commitments

Indebtedness

As of December 31, 20072008 and 2008,2009, we did not have any long-term or short-term bank and other loans, and obligations under capital leases (excludingexcluding the current portion of our capital lease obligations), and the current portion of our capitalfinance lease obligations, remained atof RMB68 million and RMB68 million (US$1010.0 million)., respectively.

On June 18, 2001 our wholly-owned subsidiary, Guangdong Mobile, issued RMB5,000 million aggregate principal amount of guaranteed bonds due in 2011 at a floating interest rate, payable annually. These bonds are listed on the Shanghai Stock Exchange. We have issued an irrevocable guarantee for the performance of these bonds, and CMCC has issued a further guarantee in relation to the performance by us of our guarantee. The bonds are rated “AAA” by China Chengxin International Credit Rating Company Limited, an affiliate of Fitch International Limited. The net proceeds from the offering were applied solely to repay part of the RMB12,500 million syndicated loans we raised through our wholly-owned subsidiary, China Mobile (Shenzhen) Limited, in 2000 for our acquisition of the Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi Mobile.

On October 28, 2002 Guangdong Mobile issued RMB3,000 million aggregate principal amount of guaranteed bonds due 2007 and RMB5,000 million guaranteed bonds due 2017. These bonds commenced trading on the Shanghai Stock Exchange on January 22, 2003. The RMB3,000 million guaranteed bonds and RMB5,000 million guaranteed bonds bear fixed interest of 3.5% and 4.5%, respectively, payable annually. We paid back the RMB3,000 million aggregate principal amount of guaranteed bonds due 2007 at maturity on October 28, 2007. We have issued a joint and irrevocable guarantee for the performance of these bonds, and CMCC has issued a further guarantee in relation to the performance by us of our guarantee obligation. These bonds received a consolidated credit rating of “AAA” by China Chengxin International Credit Rating Company Limited and a consolidated credit rating of “AAA” by Dagong Global Credit Rating Co. Ltd, a PRC credit rating agency. The entire net proceeds from the offering were applied solely to satisfy part of the US$2,800 million deferred consideration for the acquisition by the Company of the entire interest in Anhui Mobile, Jiangxi Mobile, Chongqing Mobile, Sichuan Mobile, Hubei Mobile, Hunan Mobile, Shaanxi Mobile and Shanxi Mobile in 2002.

The deferred consideration of US$2,800 million for our acquisition of the eight regional mobile telecommunications companies in 2002 and the deferred consideration of US$1,650 million for our acquisition of the ten regional mobile telecommunications companies and other telecommunications assets in 2004 are subordinated to other senior debt owed by us from time to time. In addition, these deferred considerations are payable by the fifteenth15th anniversary of the date of the completion of the respective acquisitions, and we may make an early payment of all or part of these deferred considerations at any time without penalty. We are required to pay interest semi-annually on the actual amount of these deferred considerations unpaid from the date of completion of the respective acquisitions. Interest is calculated at the two-year U.S. dollar London Inter-Bank Offered Rate, or LIBOR, swap rate at 11:00 a.m. (New York City time) on the second business day next preceding the date of the respective acquisition agreements for the first two years after completion of the respective acquisitions. Thereafter, the interest rate will be adjusted every two years to equal the two-year U.S. dollar LIBOR swap rate prevailing at 11:00 a.m. (New York City time) on the relevant interest determination dates. The payment of the deferred considerations and the interest payments can be made in Hong Kong dollars (HK$7.7993=US$1.00 and HK7.7995=US$1.00 for our acquisitions of the regional mobile telecommunications companies in 2002 and 2004, respectively), RMB (RMB8.2770=US$1.00 and RMB8.2768=US$1.00 for our acquisitions of the regional mobile telecommunications companies in 2002 and 2004, respectively) or U.S. dollars (or other agreed currencies), with the relevant exchange rates set forth in the respective acquisition agreements. Any payment made in currencies other than U.S. dollars will be accounted for based on the exchange rates between U.S. dollars and such currencies prevailing at 12:00 noon (New York City time) on the day which is two business days next preceding the date of the respective acquisition agreements. We used the entire proceeds from the RMB3,000 million guaranteed bonds due 2007 and RMB5,000 million guaranteed bonds due 2017, both issued on October 28, 2002 by Guangdong Mobile, our wholly-owned subsidiary, to pay a portion of the US$2,800 million deferred consideration for our acquisition of the eight regional mobile telecommunications companies in 2002.

Our

We currently have a corporate credit rating was raised toof A+/Outlook Stable byfrom Standard & Poor’s in 2008,which is at the same credit rating level as China’s sovereign credit rating. In November 2009, Moody’s Investors Service upgraded our credit rating to A1/Outlook Positive, in line with theits upgrading of China’s sovereign credit rating. Moody’s Investors Service continued to rate us at A1/Outlook Stable, consistent with the sovereign rating that it gave China. Any downgrade in our credit rating will not trigger any events of default on our outstanding bonds or loans or our existing credit facilities.

For a discussion of our interest rate risk, please see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

Other Contractual Obligations and Commitments

As of December 31, 2008,2009, we had various contractual obligations and commitments which are more fully disclosed in the notes to our consolidated financial statements. The principal components of these obligations and commitments include:

In the ordinary course of our business, we routinely enter into commercial commitments for various aspects of our operations, such as repair and maintenance. 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 leases and other commitments, please see note 40 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, 2008:2009:

The following table sets forth certain information regarding our other commercial commitments as of December 31, 2009:

Off-Balance Sheet Arrangements

As of December 31, 2008,2009, we did not have any off-balance sheet arrangements or any written options on non-financial assets.

Foreign Exchange

We maintain our accounts in Renminbi and substantially all of our revenue and expenses are denominated in Renminbi. All of our current operating subsidiaries are incorporated in Mainland China, except for Hong Kong Mobile, which became our wholly-owned operating subsidiary as of March 28, 2006.Mobile. Under the current foreign exchange system in Mainland China, our subsidiaries in Mainland 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 Mainland China — Fluctuations in exchange rates could materially and adversely affect our financial results” and “Item 10. Additional Information — Exchange Controls.”

Each of our operating subsidiaries in Mainland 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.

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 June 22, 2009.6, 2010.