China Netcom Reports 2007

HONG KONG -- China Netcom Group Corporation (Hong Kong) Limited(“China Netcom” or the “Company”) (HKSE: 0906; NYSE: CN), a leading broadband andfixed-line communications operator in China, announces its annual results(4) for 2007 today.China Netcom capitalized on the rapid growth of China’s Internet market to speed up itsstrategic transformation into a broadband communications and multimedia services provider.

It continued to develop a number of innovative services such as broadband, ICT (informationand communication technology), value-added services and advertising and media businessesto boost revenue. The Company also seized the opportunities presented by the Beijing 2008Olympic Games to step up its efforts to market innovative services with an aim of making abreakthrough amid mobile-substitution. The move paid off as it offset the decline in thetraditional fixed-line telecom business, and paved the way for sustainable and fastdevelopment in the future.

For the year ended December 31, 2007 (“the Period under Review” or “the Period”), thecompany generated RMB84,005 million in revenues from continuing operations, includingamortization of upfront connection fees of RMB1,517 million. Excluding amortization ofupfront connection fees, revenue from continuing operations rose 0.9% to RMB82,488million. Consolidated net profit (which included net profit of RMB624 million fromdiscontinued operations, but excluded upfront connection fees of RMB1,517 million) wasRMB10,578 million, and basic earnings per share were RMB1.59. The Board of Directorsrecommends a final dividend of HK$0.592 per share, up 7.1% from that of the previous year.

The effective management of capital expenditure and cash flow also helped to enhanceprofitability. During the Period under Review, capital expenditure was RMB20,684 million, adecline of 15.8% and a reduction of RMB316 million compared to the guidance provided byManagement at the beginning of the year 2007. Free cash flow increased by 57.2% toRMB11,775 million.

Mr. Zhang Chunjiang, Chairman of China Netcom, said, “Over the past three years, theCompany has focused its efforts on strategic transformation and operational reform. In 2007,we made significant progress in the Company’s transformation into a broadbandcommunications and multimedia services provider, breaking new ground with innovativebusinesses. In 2007, revenue generated from innovative businesses maintained its growthmomentum, growing by 38.9%, and accounted for 34.7% of total revenue, up 9.5 percentagepoints from the previous year. This has paved the way for China Netcom’s sustainable andfast growth in the future. We believe that the Company can sustain growth and create valuefor shareholders as long as it follows this long-term vision.”

Increased proportion of Innovative Businesses in total revenue

In 2007, revenue from innovative businesses surged 38.9% to RMB28,656 million.During the year, the Company launched a “Super Broadband Plan” to take advantage ofgrowth opportunities presented by the rapid expansion of Internet usage in China. Within itsservice regions, the Company increased broadband access speed, implemented newoperational and business models, and promoted its Olympic ties and strategy. By the end of2007, the total number of broadband subscribers of the Company increased 5.339 million to19.768 million, representing a growth of 37.0% and a market share of 88.9% in theCompany’s service areas.

Along with the expansion of the broadband subscriber base, the Company focused onintegrating broadband content and applications. It launched “CNC MAX” Client to deliverenriched content and applications directly to the desktops of its subscribers. The Companyalso diversified broadband access sources, extending its range from PCs to TV sets.

These moves boosted average revenue per user (ARPU). Broadband service generated totalrevenue of RMB13,835 million in 2007, and ARPU grew by 3.9% to RMB67.4. In particular,revenue from broadband content and applications reached RMB1,749 million, up107.7%from the previous year, and contributed RMB8.5 to average revenue per broadbandsubscriber.

With its expanding of “CNC MAX” Client user base and content and applications enrichment,the Company began to build competitive advantage its advertising and media businesses. In2007, the Company built a competitive advantage in advertising and media through “PhoneNavigation”, “CNC MAX” Client and “CNC Yellow Pages”. By the end of the year,advertising and media businesses generated revenue of RMB380 million.To capitalize on the increasing penetration of IT across all sectors of society, the Company hasset a long-term goal of becoming one of China’s leading ICT service providers, as well as anetwork information specialist for government and corporate customers. Leveraging its brandand resources, the Company made great efforts to develop ICT services and puts emphasis inenhancing its capability of providing integrated solutions for key customers and markets aswell as to move up the value chain during the Period under Review. In 2007, the Companydeveloped its competitive advantages in integrated solutions for government, Olympics,health, education, finance and other industries. As a result, the Company obtained contractsfrom important customers such as the State Council Informatization Office, the NationalPeople’s Congress, the Ministry of Commerce, China International E-commerce Center andthe Chinese Academy of Medical Sciences. In 2007, revenue from the ICT business increasedby 366.7% to RMB3,990 million.

In 2007, the Company focused on expanding the scope of its value-added services andincreasing the penetration rate of these services for its fixed line subscribers. By the end of2007, revenue from value-added services had increased by 14.5% to RMB6,114 million,accounting for 7.4% of total revenue, an increase of 0.9 percentage point from 2006. Thenumber of Personalized Ring subscribers grew by 78.6% to 28.137 million. Of these, 19.970million used fixed-line Personalized Ring, representing a growth of 124.1% and a penetrationrate of 23.6%. The penetration rate of Caller Identification Service was 72.2%, up by 3.4percentage points.

Promoting bundled services in traditional fixed-line business

In 2007, the Company continued to promote bundled services and integrated services in thetraditional fixed-line services under the brand names “Family 1+” and, “Same Number”,driving the growth of innovative services by bundling various services in one package. By theend of 2007, the number of “Family 1+” subscribers grew by 650.8% to 8.378 million.Subscribers to “Same Number” increased by 75.7% to 1.663 million. Fast growth in the “Family 1+” service accelerated the development of broadband access, broadband content andapplications as well as value-added services. In 2007, more than 80% of the net growth inbroadband subscribers also subscribed to “Family 1+”.

Due to accelerating mobile substitution, the number of local telephone subscribers declined to110.820 million at the end of 2007, down by 3.152 million, including a 4.1% decrease in PHSsubscribers to 26.189 million. ARPU and traffic for local telephone services continued to fall.

We believe that with the growing penetration of the “Family 1+” service plan, steadyimprovement in pricing and shift of the service plan positioning to home multimediainformation service, the value of fixed-line telephone services customer will be maximized.

Capitalizing on the Olympics

As a partner of the 2008 Olympics, the Company intensified marketing in 2007 stick to its“Broadband Olympics” strategy, which is expected to drive substantial growth in bothbroadband and ICT services. The “Broadband Olympics” strategy is expected to enhance theCompany’s brand image, services, management, and overall competitiveness.

Prospect

Looking forward, Chairman Zhang Chunjiang said, “The telecommunications industry isundergoing rapid and profound change. It is hard for the traditional operational model to keepup with the rapid changes in demand and the fast development of technological innovation. Inview of this, the Company will continue its strategic transformation into a broadbandcommunications and multimedia services provider in 2008. It will also persevere in its pursuitof licenses for mobile services and IPTV services, which will pave the way for the Companyto become a comprehensive broadband communications and multimedia services provider,based on the quadruple-play business model. We believe that the only way to sustain growthand enhance value for our shareholders is to deliver breakthrough innovation, embracechallenge proactively, and drive trends rather than follow them.”

China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906)