China Netcom Announces Results for First Three Quarters of 2008

HONG KONG--(BUSINESS WIRE)--China Netcom Group Corporation (Hong Kong) Limited (“China Netcom” or the “Company”) (HKSE: 0906; NYSE: CN), a leading broadband and fixed-line communications operator in China, announces its unaudited results for the first three quarters of 2008. In the third quarter of 2008, the innovative businesses of the Company continued to grow rapidly and the proportion of its contribution in the Company’s total revenue increased, helping to offset part of the decline in the revenue in the traditional fixed-line businesses amid the mobile-substitution. Broadband services are still the major driver of the growth in the Company’s innovative businesses.

For the nine months ended September 30, 2008 (“the period under review” or “the period”), the revenue of the Company was RMB60.679 billion, including upfront connection fees of RMB710 million. Excluding the upfront connection fees, the revenue of the Company was RMB59.969 billion, representing a decrease of 1.80% from the same period of 2007. (All figures in this document exclude upfront connection fees unless otherwise stated.)

In the period under review, there was robust demand in the domestic market for broadband services. The Company seized the business opportunity by actively implementing the “Super Broadband Plan”. As of September 30, 2008, the number of the Company’s broadband subscribers was 24.859 million, representing a net addition of 5.091 million when compared to the figure as of the end of last year. Although the growth of the Company’s broadband subscriber base in the third quarter of 2008 was affected by the Beijing Olympics to a certain extent, a rapid growth momentum is maintained and a year-on-year growth of 35.4% was recorded.

Leveraging the rapidly growing subscriber base, the Company actively increased network connection speed and placed greater efforts in the creation and marketing of broadband content and applications services. In the third quarter of 2008, the trend of broadband subscribers moving to broadband with higher connection speed continued. The broadband content and services were continuously enriched, and the scope of applications services such as video monitoring and network information security services continued to expand. The number of active subscribers of “CNC MAX” Client was over 3,800 thousand as of 30 September 2008 because of the enriched content and increased efforts to satisfy the subscribers’ needs and demands.

The key strategy of the Company’s information and communications technology (ICT) services in this year is to strengthen its capabilities to provide integrated solutions for enterprises and government as well as to shift towards the high end of the value chain with an aim of improving profitability. In the third quarter of 2008, the Company appropriately controlled the growth of ICT services and reduced the proportion of revenue derived from third party equipment sales with low profitability. It also shifted towards the high end of the value chain by branching out into outsourcing services, network management and consulting services. Although the revenue from ICT services grew less rapidly, the profitability of the business segment improved.

In the period under review, the operations of the Company’s traditional voice businesses remained under relatively strong pressure. As of September 30, 2008, the Company had 107.329 million local access subscribers, 3.491 million less than that at the end of last year. Of this number, fixed-line subscribers declined by 2,121 thousand and PHS subscribers declined by 1.370 million compared to the end of last year. Benefiting from the significant progress in the Company’s “CNC Connected” business and its policy of actively developing ICT services, as of 30 September 2008, the Company recorded an increase of 125,000 enterprise subscribers over the end of last year. In the third quarter of 2008, as a result of mobile substitution and the reduction of operations activities of some enterprises during the period of the Beijing Olympics, the Company’s call volume continued to decline. Meanwhile, the replacement of fixed-line voice services by mobile voice services became more rapid in long distance voice businesses because of the decline in the charges for roaming in mobile voice services. As of September 30, 2008, the Company’s domestic long distance call volume declined by 9.9% year on year and its international long distance call volume declined by 4.0% year on year.

In response to the decline in traditional voice businesses, in the third quarter of 2008, the Company continued to push forward the transformation of the traditional fixed-line businesses to “family-use multimedia information services” with a view to gradually enabling “Family 1+” to provide comprehensive information services, covering communications, entertainment and applications to users through different terminals, thereby enhancing the value of the fixed-line network. As of September 30, 2008, there were 10.80 million “Family 1+” subscribers. Contributions from the innovative business in “Family 1+” continued to increase. About 60% of the “Family 1+” service subscribers are using services. There was satisfactory growth in the voice-based “Mutual Assistance” business among rural subscribers. The increase in the voice-based and broadband-based content and application services of the “Family 1+” service is expected to further unlock the value of our fixed-line network. Meanwhile, the replacement of fixed-line business by mobile services is also expected to slow down gradually.

Of the prospect, Mr. Zuo Xunsheng, Chairman of China Netcom, said, “On 15 October 2008, the merger between the Company and China Unicom Limited becomes effective. After the merger with China Unicom Limited, the Company’s competitiveness within its service regions and its ability to provide voice, broadband and multi-media information services for the customers using various networks will be greatly enhanced. In the fourth quarter of 2008, the Company will actively leverage the resources of the two companies in their distribution networks, customer base, telecom network, product variety and human resources and will continue to increase its efforts in developing the broadband business and further advance the network connection speed and implement the development strategy of broadband content and applications services. The Company will also continue to improve and enrich the “Family 1+” bundled services to maximize customer and network value and stabilize its fixed-line business, with an aim of maintaining the Company’s leading position in fixed-line market.”

About China Netcom Group Corporation (Hong Kong) Limited

China Netcom Group Corporation (Hong Kong) Limited is a leading broadband and fixed-line communications operator in China. Its service region consists of Beijing Municipality, Tianjin Municipality, Hebei Province, Henan Province, Shandong Province, Liaoning Province, Heilongjiang Province, Jilin Province, Inner Mongolia Autonomous Region and Shanxi Province. The Company provides fixed-line voice, value-added services, broadband and other internet-related services, information and communications technology (ICT), business & data communications services and advertising and media services.

The Company’s unaudited revenue and certain selected operational data for the first three quarters of 2008, and the related announcement are available on the Company’s website at: http://www.china-netcom.com

Disclaimer

This press release includes "forward-looking statements". All statements, other than statements of historical facts, that address activities, events or developments that the Company expects or anticipates will or may occur in the future (including but not limited to projections, targets, estimates and business plans) are forward-looking statements. The Company's actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to the level of demand for telecommunications services; competitive forces in more liberalized markets; the effects of tariff reduction initiatives; changes in the regulatory policies and other risks and factors beyond the Company's control. In addition, the Company makes the forward-looking statements referred to herein as of today and undertakes no obligation to update these statements.