At the beginning of 2005, in light of the domestic and international changing environment, conforming to the trend of international telecom transformation trend, and in order to enable the corporation to have sustainable, healthy and steady development, as well as based on the scientific development concept and taking the rare opportunity through correct analyses, China Telecom proposed to push forward the strategic transformation of the corporation. The strategic transformation means to transform China Telecom from a traditional basic telecom network operator into a modernized integrated information service provider. The intention is: on the basis of continuously taking the advantage of the fixed-line voice and broadband network, the telecom service in the rural areas and the international telecom services should be emphasized; active development should go to the Internet applications, ICT, video contents and mobile communications; by relying on multiple services, multiple networks, convergence of multiple terminals and the extension of the value chain to explore the customer's value, to raise the competitiveness of the corporation and to provide facilitative, rich, personalized and high performance-price ratio integrated information services

(See Figure 1.); trying to become a complete telecom service provider, integrator of Internet applications and a leading operator of ICT services for medium-sized and small enterprises, and further to be a leading operator in the integrated information service chain based on the telecom network; continuously enhancing the corporate value while in harmoniously developing

( See Figure 2.).

 In order to transform into an integrated information provider, we should take a customer-centered approach, cooperate with the parties concerned through the value chain, and should adopt the binding and converging operation modes in providing the voice, broadband, video and high additional value applications. We should accelerate the transformations in our businesses and services, networks and their relevant technologies, organizations and human resources. We should adjust our structure of the revenues, investments and costs as against the human resources so as to realize the transformation of the corporate value from a type that is driven by investments and costs to a type that is evaluated by scaled effectiveness. To become an integrated information provider might need 8- 10 years and the transformation might be basically realized in 5-6 years. The forthcoming 2-3 years will be the key period within that the structural adjustment of the revenues, investments and costs against the human resources should be steadily realized. Our targets for the time as of 2010 are: the revenue generated by the non-voice services will be 45% in the total revenue; a revenue of 10 billion yuan will be achieved from each of the four fields, namely the Internet and value-added services, ICT applications, mobile communications services and the international services; the growing rate of the revenues generated by the major services will basically keep the same pace with telecom industry developing rate; the customer satisfaction rate will stand in the forefront among those of the telecom operators in the country; the major value targets will catch up with those of internationally comparable telecom operators; and a talent force and a study-type organization that is compatible with the corporate strategy transformation will be set up.

I. Business and service transformation.

We will get rid of the traditional customer positions and explore integrated information service requirement potentials in a penetrated way from business, family and individual customers, and by converging innovation in services and terminal provisions, will provide customers with simplified, facilitative and personalized integrated information experience and will enable our customers to continuously enhance their values. For big business customers, we will satisfy them with overall solutions for differentiated and one-stop integrated information communications services. For medium-sized and small business customers, we will meet their requirements for services which may facilitate them to find business opportunities, reduce costs and increase effectiveness. For family customers, we will satisfy their entertainment and digitalized family management requirements. And for individual customers, we will provide them with a combined fixed and mobile communications service and entertainment experience.

II. Network and technology transformation.

By taking the service driving as the technical development guideline and technical driving as the development accelerator, we will actively implement the network transformation. By initiatively going with the technological developing trend, we will push forward the transformation from the current network to the next generation network that will be characterized by functional convergence, flat structure, concentrated control and flexible service opening. We will try to realize high-speed deployments in network organization and service provision, and an overall and high effective support for a converged broadband and narrowband services in different types. We will reduce our service provision costs and network operation costs and provide our customers with differentiated network quality assurance and maintenance services.

III. Organization and human resources transformation.

We should establish and perfect a longitudinal corporate-typed management system that is customer-centered, high effective and flexible. We should further streamline the relationship of the front end and the rear end and establish a front-end and rearend joint-moving mechanism so as to realize the conversion from a production management workflow to a customer-centered business-flow. We will further continue innovation with fivemechanisms, perfect the leading member encouragement and retirement mechanism. We will really establish a marketorientated employment mechanism in that employees are able to come and able to leave, positions taking by a staff member can be higher and lower and the income for a staff member can be more and less. At the same time, we will speed up the strategic transformations relating to our Beijing Corporation, the Northern Telecom Co., Ltd. and our sideline industries. With the concept of appropriate competition and cooperation as well as avoiding reputations, we will make the Beijing Corporation and the Northern Telecom Co., Ltd. outstanding corporations and enable them to be new type integrated information provider that will be characterized by "advanced system, flexible mechanism, thought advancing and innovative concept" so as to cater to differentiated competition. Through restructuring and consolidation, system change and stock system introduction, we will turn the sideline industry of China Telecom into a service provider for telecom operators, that will be characterized by"outstanding effectiveness, reasonable structure, high effective management, flexible mechanism, modernized enterprise and high core competitiveness".