The Hong Kong telecommunications market is one of the most sophisticated telecommunications markets in the world. With its substantial telecommunications infrastructure, Hong Kong’s telecommunications market supports one of the world’s highest penetration rates for subscribers to mobile and fixed-line telecommunications services.

Mobile telecommunications services were first launched in Hong Kong in 1984. Since then, Hong Kong has witnessed a dramatic growth in the uptake of these services. During the 10-year period from 1993-2003, the number of mobile telecommunications subscribers increased by a factor of approximately 25 with an average compound annual growth rate of 38%. Market growth has slowed since 2001, however, and is now primarily driven by prepaid subscribers. As of December 31, 2003, Hong Kong had a mobile penetration rate of approximately 105%, with approximately 7.19 million mobile phone subscriptions out of a total population of approximately 6.85 million in Hong Kong.

The mobile telecommunications penetration rate in Hong Kong has increased from approximately 78% as of the end of 2000 to approximately 105% as of the end of 2003. With six mobile telecommunications operators serving a market that has such a high penetration rate, the Hong Kong mobile telecommunications services market is highly competitive. Hong Kong’s mobile telecommunications operators have frequently engaged in price competition in order to win market share from each other.

Until the mid-1980s, the telecommunications industry in India was a monopoly, managed and controlled by the government. Despite having a very large network infrastructure, the telephone density in India was one of the lowest in the world. To overcome this, the government formulated the National Telecom Policy 1999, with the main objective of achieving a higher penetration rate.

Although India’s fixed-line telecommunications sector has slowed down in terms of subscriber growth, the number of people using mobile phones in India has increased significantly since the end of 2000.

The Company’s 2G services in Hong Kong, through postpaid plans and prepaid SIM cards, offer a large variety of value-added services, including voicemail, caller identification display, call waiting, call forwarding and call blocking, in addition to the standard local voice services, IDD services and international roaming services.

To meet market demand for the faster transmission speeds required for wireless Internet access and other applications, the Company has continued to invest in innovative technology such as GPRS technology, which can offer transmission speeds of up to 115 Kbps. GPRS modem cards provide subscribers with access to the Internet, email and corporate networks at connection speeds of up to 53.6 Kbps. The Company pioneered Hong Kong’s first 2.5G, packet data mobile telecommunications service in August 2000 with CDMA IS95B technology, offering CDMA users data transmission speeds of up to 64 Kbps.

The Company offers a variety of handsets for both 2G and 3G subscribers. All of the Company’s GSM handsets have either dualband or triband capability in order to satisfy subscriber roaming needs. Major suppliers of 2G handsets include Nokia, Motorola, Sony Ericsson, Siemens, Samsung and LG.

Operating profit increased from HK$495 million in the six months ended June 30, 2003 to HK$1,693 million (US$217 million) in the same period in 2004.

Operating expenses increased by 59.5% from HK$4,303 million in the six months ended June 30, 2003 to HK$6,863 million (US$880 million) in the same period in 2004.

Interest and other finance costs, including the Company’s share of such costs of associated companies, increased by 10.4% from HK$500 million in the six months ended June 30, 2003 to HK$552 million (US$71 million) in the same period in 2004.