Chunghwa Telecom Reports Consolidated Operating Results

Dr. Shyue-Ching Lu, Chairman and Chief Executive Officer of Chunghwa Telecom, said, "We are pleased to report a solid performance in the first quarter of 2011. Total consolidated revenue reached NT$52.48 billion, with growth continuing to be driven by higher fixed line revenue resulting from the shift in the pricing right of a fixed to mobile call from mobile operators to fixed network operators, as so then as strong mobile value added service and handset sales. While the quarter, we continued to grow our traditional telecom service business, also as gaining new Information and Communication Innovation contracts. In order to leverage our strength in ICT, we have established a wholly owned subsidiary in China to function as an ICT solution provider. Looking ahead, we remain focused on pursuing growth by maintaining our operational focus on broadband, VAS, technology and integration, together as expanding our overseas business."

The first quarter of 2011 increased

Chunghwa's total consolidated revenue for the first quarter of 2011 increased by 5.8% year-over-year to NT$52.48 billion, of which 43.5% was from the mobile business, 11.6% was from the internet business, 36.6% was from the domestic fixed business, 7.2% was from the international fixed business, and the remainder was from others. In spite of the National Communications Commission tariff reduction that came into effect on April 1, 2010, Chunghwa maintained its growth pattern, due mainly to an increase in mobile VAS, handset sales and internet services.

For the mobile business, total revenue for the first quarter 2011 amounted to NT$22.84 billion, representing a year-on-year increase of 2.8%, mainly due to growth in mobile VAS revenue relating to smartphone promotions and handset sales which offset the decline in mobile voice revenue. The decline of mobile voice revenue was primarily resulting from the shift of pricing right for fixed to mobile calls from mobile to fixed operators.

Chunghwa's internet business revenue increased by 3.6% year-over-year to NT$6.08 billion in the first quarter of 2011, mainly attributable to growth in the number of broadband subscribers and the migration of Asymmetric Digital Subscriber Line subscribers to fiber solutions.

The first quarter of 2011

For the first quarter of 2011, domestic fixed revenue totaled NT$19.20 billion, representing an increase of 11.6% year-over-year. Local earnings increased by 24.3% year-over-year, mainly due to the shift in pricing right for fixed to mobile calls. The 13.2% decline in Domestic Long Distance earnings was due to mobile and Voice over Internet Protocol substitution, as then as reflecting the mandated tariff reduction.

Broadband access revenue, including ADSL and Fiber to the x, increased by 3% year-over-year to NT$5.23 billion. Even though ADSL access revenue decreased as more ADSL subscribers migrated to fiber solutions, the decrease was fully offset by growth in FTTx access revenue.

International fixed revenue decreased by 4.5% to NT$3.79 billion, primarily due to the decrease in leased line revenue and satellite service revenue resulting from the expiration of the ST-1 contract at the end of January 2011.Other revenue increased by 58.1% year-over-year to NT$0.56 billion.

Total operating costs and expenses for the first quarter of 2011 amounted to NT$38.53 billion, an increase of 10.9% compared to the same period of 2010. This increase was mainly due to the increase in interconnection costs and transition fees resulting from the shift in pricing right of fixed-to-mobile calls, the higher cost of handsets sold and the early retirement expense.

The first quarter of 2011

For the first quarter of 2011, EBITDA decreased by 6.6% to NT$22.00 billion and income from operations decreased by 6.3% to NT$13.94 billion, reflecting the negative impact on income from operations resulting from the shift in the pricing right of fixed to mobile calls, the increase in cost of handsets sold and the early retirement expense.

Total capex for the first quarter of 2011 amounted to NT$4.38 billion, a 5% increase year- over-year. Of the NT$4.38 billion capex figure, 57.1% was used for the domestic fixed communications business, 21.0% was for the mobile business, 14.3% was for internet business, 5.9% was for international fixed communications business and the remainder was for other uses.

The first quarter of 2011 decreased

Cash FlowCash flow from operating activities for the first quarter of 2011 decreased by 38.2% year-over-year to NT$9.7 billion, mainly due to Chunghwa's decision to bring its billing period for monthly fees in line with that for communication charges starting from January 2011.

In managing our business we rely on EBITDA as a means of assessing our operating performance. We believe that EBITDA can be useful to facilitate comparisons of operating performance between periods and with other companies because it excludes the effect of depreciation and amortization, which represents a non-cash charge to revenues, certain financing costs, which are significantly affected by external factors, including interest rates, foreign currency exchange rates and inflation rates, which have little or no bearing on our operating performance, income tax other expenses or income not related to the operation of the business.

EBITDA is not a measure of financial performance in accordance with U.S. GAAP or ROC GAAP. EBITDA should not be considered as an alternate measure of net income or operating income, as determined on a consolidated basis using amounts derived from statements of operations prepared pursuant to this agreement U.S. GAAP or ROC GAAP, as an indicator of operating performance or as cash flows from operating activity or as a measure of liquidity. EBITDA has material limitations that impair its value as a measure of a company's overall profitability since it does not address certain ongoing costs of our business that could significantly affect profitability just as financial expenses and income taxes, depreciation, pension plan reserves or capital expenditures and associated charges. These non-GAAP measures are not pursuant to this agreement or an alternative for GAAP financial data, the non-GAAP results should be reviewed at the same time with the GAAP results and are not intended to serve as a substitute for results under GAAP, and may be different from non-GAAP measures used by other companies.

Chunghwa Telecom is Taiwan's leading telecom service provider. The Company provides fixed-line, mobile and Internet and data services to residential and business clients in Taiwan.