PCCW Limited

(Incorporated in Hong Kong with limited liability)
(Stock Code: 0008)

CONTINUING CONNECTED TRANSACTIONS
WITH THE CHINA NETCOM GROUP

The China Netcom Group is a connected person of the Company under the Listing Rules and transactions
between the Group and the China Netcom Group constitute connected transactions for the Company under
Chapter 14A of the Listing Rules.

The Group from time to time enters into transactions with the China Netcom Group relating to the acquisition
and provision of certain information technology services and products. These transactions constitute
continuing connected transactions of the Company under Rule 14A.14 of the Listing Rules. The annual caps
in respect of each category of transaction described in the Previous Announcements have expired on December
31, 2007. The Directors propose to set a maximum aggregate annual value for each category of transaction for
each of the 3 financial years ending December 31, 2008, 2009 and 2010.

As the relevant percentage ratios (as defined in the Listing Rules) of the Annual Cap for each category of the
continuing connected transactions exceed 0.1% but are less than 2.5%, the transactions are only subject to the
reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules and are
exempt from the independent shareholders’ approval requirements under Rule 14A.34 of the Listing Rules.

BACKGROUND

China Netcom BVI, an indirect wholly-owned subsidiary of China Netcom, is a substantial shareholder and
connected person (as defined in the Listing Rules) of the Company. China Netcom BVI directly holds
approximately 20% of the issued share capital of PCCW as at the date of this announcement. Therefore, the
China Netcom Group is a connected person of the Company under the Listing Rules and transactions between
the Group and the China Netcom Group constitute connected transactions for the Company under Chapter 14A
of the Listing Rules.

The Group from time to time enters into transactions with the China Netcom Group relating to the acquisition
and provision of certain information technology services and products. These transactions constitute
continuing connected transactions of the Company under Rule 14A.14 of the Listing Rules and are classified
into the following categories based on the nature of the transactions:-

1. Provision of data services by the Group to the China Netcom Group;
2. Provision of data services by the China Netcom Group to the Group; and
3. Provision of systems integration services by the Group to the China Netcom Group.
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DESCRIPTION OF THE AGREEMENTS CONSTITUTING THE CONTINUING
CONNECTED TRANSACTIONS

The nature of the agreements constituting the continuing connected transactions, and in particular the bases of
calculating the payments to be made under those agreements, are described below, in accordance with the
categories of transactions specified above.

Provision of data services by the Group to the China Netcom Group

The provision of data services by the Group to the China Netcom Group refers to the provision of dedicated
networks, in the form of private leased lines or Internet Protocol platforms, for mainly data and voice
communication, both locally and internationally. These dedicated networks are used by the China Netcom
Group to facilitate the provision of its telecommunications services to its own customers.

The data services provided by the Group to the China Netcom Group are generally provided on the basis of the
Group's standard network services application form, which is effectively equivalent to a purchase order. The
network services application form incorporates the general conditions of service of the relevant member(s) of
the Group, which are available on the Company's website. The minimum commitment period for the provision
of the data services is stated in the network services application form. The charges for these data services may
include a one-off charge per circuit and a monthly rental charge. In addition, a number of agreements have
been entered into other than on the basis of the Group's standard network services application form. The
agreements may incorporate the standard terms and conditions of the relevant member(s) of the Group which
is/are party to them and are otherwise on similar terms. In all cases, the agreements for the provision of such
data services by the Group to the China Netcom Group provide for one or more of the following bases of
calculation of the payments to be made:

(a) Cost plus a fixed percentage mark up;

(b) Agreed unit prices, determined by reference to comparable market prices, the committed contract duration
and/or the committed volumes. In this regard, customers committing to a longer contract period or
greater volume may enjoy a lower price;

(c) Agreed pricing for individual services on a case by case basis, by reference to current market offers and
comparable market prices for similar services provided on substantially the same terms and conditions;
and/or

(d) Agreed percentage revenue sharing based on the services provided in different service sectors or
territories.

Each of the bases of calculation described in (a), (b), (c) and (d) above is comparable to those offered to
independent third parties.

Provision of data services by the China Netcom Group to the Group

The provision of data services by the China Netcom Group to the Group refers to the provision of dedicated
networks, in the form of private leased lines or Internet Protocol platforms, by the China Netcom Group to the
Group. The dedicated networks are mainly used for data and voice communication, both locally and
internationally. The Group uses these dedicated networks in the provision of telecommunications services to
its own customers.

The terms of the agreements relating to the provision of such data services by the China Netcom Group to the
Group provide for one or more of the following bases of calculation of the payments to be made:

(a) Payments determined by reference to prices specified in guidance issued by the PRC Government, or in
the absence of PRC Government guidance prices, by reference to the market price of the same or similar
data services;

(b) Agreed unit prices, determined by reference to comparable market prices, the committed contract duration
and/or the committed volumes. In this regard, customers committing to a longer contract period or
greater volume may enjoy a lower price;
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(c) Agreed pricing for individual services on a case by case basis, by reference to current market offers and
comparable market prices for similar services provided on substantially the same terms and conditions;
and/or

(d) Agreed percentage revenue sharing based on the services provided in different service sectors or
territories.

Each of the bases of calculation described in (a), (b), (c) and (d) above is comparable to those offered to
independent third parties.

Provision of systems integration services by the Group to the China Netcom Group

The provision of systems integration services provided by the Group to the China Netcom Group refers to the
provision of services and/or hardware and/or software required to set up a computer system or network system
according to the user's requirements. Such systems integration services provided under the agreements include
system design, project management, system implementation, consultancy, software development, testing and
maintenance. Many of such systems integration services agreements were entered into following a competitive
tender process initiated by the China Netcom Group and, accordingly, were entered into on terms specified by
the relevant member of the China Netcom Group as part of the tender procedures. This is expected to remain
the case for systems integration services agreements to be entered into between 2008 and 2010. The remaining
contracts were entered into on an individual basis and were specific to a particular project and this is also
expected to remain the case for systems integration services agreements to be entered into between 2008 and
2010. Payments under those agreements entered and to be entered into following a tender process are
determined by the requirements of the tender and a competitive bidding process. Payments under those
agreements entered and to be entered into on an individual basis are determined by reference to the cost of
providing the systems integration services and the market price for similar services obtained from other service
providers. More specifically:

(a) Payments to be made under the agreements for delivery of hardware and software are generally calculated
based on the actual cost incurred for the relevant hardware or software, plus a percentage mark up; and

(b) The service element of the systems integration services is generally calculated based on the number of
man hours incurred, or the outsourcing costs incurred, in each case with a percentage mark up. The
service component of the systems integration services generally includes both an implementation service
(charged as aforesaid) and a software license.

The bases of calculation of payments made for the provision of systems integration services by the Group to the
China Netcom Group are comparable to those offered to independent third parties.

REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS

The Group is principally engaged in providing key services in the areas of integrated telecommunications,
broadband solutions, connectivity, narrowband and interactive broadband (Internet services), information
technology solutions and services and infrastructures. It is considered that the provision of data services to
and/or from the China Netcom Group and the provision of systems integration services to the China Netcom
Group are consistent with the commercial objectives of the Group and fall within the core business of the Group.
It is anticipated that entering into transactions with the China Netcom Group will further strengthen the Group’s
position as a provider of the information technology services in the PRC.

CONTINUING CONNECTED TRANSACTIONS

The Group from time to time enters into transactions with the China Netcom Group relating to the acquisition
and provision of certain information technology services including the aforesaid data services and systems
integration services. These transactions constitute continuing connected transactions of the Company under
Rule 14A.14 of the Listing Rules.

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Annual Cap

Set forth below are the historical caps for the 9 months ended December 31, 2005 and each of the 2 financial
years ended December 31, 2006 and 2007, and their relevant actual amounts incurred for each of such periods:

Category
Aggregate value
For the period
from April 1,
2005 to
December 31,
2005

Annual Cap
For the period
from April 1,
2005 to
December 31,
2005

Aggregate value
For the financial
year ended
December 31,
2006

Annual Cap

For the
financial year
ended
December 31,
2006

Aggregate value
For the period
from January 1,
2007 to
October 31,
2007

Annual Cap
For the
financial year
ended
December 31,
2007

(HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million)

1. Provision of data services
by the Group to the China
Netcom Group

8.3 150.0 17.9 250 24 350

2. Provision of data services
by the China Netcom Group
to the Group
29.9 61.0 45.9 290 68 290

3. Provision of systems
integration services by the
Group to the China Netcom
Group
127.3 246.8 15.9 300 45 400

Given the anticipated recurring nature of the continuing connected transactions, the Directors propose to set a
maximum aggregate annual value (“Annual Cap”) for each category of these transactions. The Annual Cap of
each category of transactions for the 3 financial years ending December 31, 2008, 2009 and 2010 are as follows:

Annual Cap
for the year ending December 31,
Category 2008 2009 2010

(HK$ million) (HK$ million) (HK$ million)
1. Provision of data services by the Group to the China Netcom
Group

300 250 320

2. Provision of data services by the China Netcom Group to the
Group

350 320 370

3. Provision of systems integration services by the Group to the
China Netcom Group
150 250 320

The Annual Cap for each of categories 1 and 2 has been determined by reference to: (a) the relevant historical
figures and various contracts entered into before 2008 which will continue to be in force in 2008, 2009 and/or
2010, and contracts under negotiation which are intended to be entered into during 2008 to 2010, in respect of
both of which, save for those transactions mentioned below, are for a duration not exceeding 3 years; (b) the
estimated growth and development of the business of the Group in light of the economic growth in the PRC; (c)
the estimated market pricing of that category of transaction; (d) the existing scale and operation of the Group’s
business in the PRC; and (e) the estimated surge in transactions with the China Netcom Group in anticipation of
the forthcoming Olympic Games and Asian Games to be held in the PRC.

The Annual Cap for category 3 has been determined by reference to: (a) the relevant historical figures; (b) the
estimated growth and development of the business of the Group in light of the economic growth in the PRC; (c)
the estimated market pricing of that category of transaction; (d) the existing scale and operation of the Group’s
business in the PRC; and (e) the estimated surge in transactions with the China Netcom Group in anticipation of
the forthcoming Olympic Games and Asian Games to be held in the PRC.

The Group and the China Netcom Group have established solid business relationships which allow them to
develop further business opportunities in the PRC. In particular, for categories 1 and 2 above, significant
growth prospects are anticipated due to anticipated network expansion of the Group, increased demand for data
services by both the Group and the China Netcom Group, expected growth in the value of the transactions

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between both groups, anticipated development and expansion of new services and products of both groups in
light of rapidly evolving developments in the technology and telecommunications sectors and the continuous
liberalization measures implemented under the Closer Economic Partnership Agreement for strengthening trade
and investment cooperation between Hong Kong and the PRC. Therefore, the Company intends to continue to
work closely on a commercial arm’s length basis with the China Netcom Group on these new opportunities.

The terms and conditions of each transaction under each category of continuing connected transactions will be
on a commercial arm’s length basis, and no less favourable to the Group than those obtainable from or offered to
independent third parties. In general, the duration or term of each transaction, other than those transactions
mentioned below, would not exceed 3 years.

The Directors (including the independent non-executive Directors) consider that the continuing connected
transactions will be entered into in the ordinary course of business of the Company, on normal commercial
terms after arm’s length negotiation, which will be fair and reasonable and in the interest of the shareholders of
the Company as a whole.

Duration of the provision of data services relating to IRU Contracts

The Group may from time to time enter into capacity purchase or sales contracts relating to the grant of
indefeasible rights to use bandwidth capacity (“IRU Contracts”) available on both groups’ networks to and/or
from the China Netcom Group. These IRU Contracts are categorized under the aforesaid data services
categories and are part of the normal commercial activities of the Group.

As disclosed in the Previous Announcements, the independent financial adviser, which was appointed by the
Company to advise the Directors in relation to the duration of the provision of IRU Contracts from the China
Netcom Group to the Group and vice versa under Rule 14A.35(1) of the Listing Rules, confirmed at the time of
the Previous Announcements that it was normal business practice for the provision of IRU Contracts to be of a
duration exceeding 3 years and up to 15 years. The IRU Contracts for the 9 months ended December 31, 2005
and for each of the 2 financial years ended December 31, 2006 and 2007 were covered by the opinion from an
independent financial adviser. The Company will comply with Rule 14A.35(1) of the Listing Rules and will
appoint an independent financial adviser to explain why a period longer than 3 years is required, and to confirm
that it is normal business practice for contracts of this type to be of such duration on each relevant occasion in
respect of the contracts that are to be entered into for the 3 financial years ending December 31, 2008, 2009 and
2010.

Waiver from strict compliance with the requirements of Rule 14A.35(1) of the Listing Rules

The Company has applied for a waiver from strict compliance with the requirement of having written
agreements under Rule 14A.35(1) of the Listing Rules on the basis that the Group has not, at the outset, entered
into a written agreement with the China Netcom Group covering all future continuing connected transactions.
It is common market practice in the telecommunications and information technology sectors for service
providers to enter into agreements as and when particular services or products are requested by the customers
based on technology and prices prevailing at that time. In addition, the China Netcom Group is an
exceptionally large corporate group of telecommunications services provider in the PRC comprising of
numerous provincial member units across the PRC. Each of these provincial member units operates its
business independently from the other member units and may be subject to different provincial legal and
business requirements. Agreements for each category of these continuing connected transactions are and will
be entered into between various members of the Group and of the China Netcom Group. With regards to the
aforesaid, it will be extremely difficult, if not impossible, for the Company to enter into a master agreement with
the China Netcom Group for the three different categories of continuing connected transactions for the 3
financial years ending December 31, 2008, 2009 and 2010 and to include details of all the terms of agreements
with the China Netcom Group in such an agreement.

Compliance with the Listing Rules

As the relevant percentage ratios (as defined in the Listing Rules) of the Annual Cap for each category of the
continuing connected transactions exceed 0.1% but are less than 2.5%, the transactions are only subject to the
reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules and are
exempt from the independent shareholders’ approval requirements under Rule 14A.34 of the Listing Rules.

Each transaction will be entered into in accordance with the written agreements with the China Netcom Group
existing as at the date of this announcement or new agreements to be executed between the respective members

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of the Group and of the China Netcom Group during each of the 3 financial years ending December 31, 2008,
2009 and 2010. Details of these transactions, including the opinions of the independent financial adviser in
respect of the duration of contract exceeding 3 years, will be disclosed in the Company’s next published annual
report and accounts in accordance with Rule 14A.46 of the Listing Rules.

In respect of new written agreements to be entered into, to the extent that the terms are materially different from
such of the existing written agreements, or if the aggregate values of the transactions exceed the Annual Cap, the
Company will publish an announcement and will re-comply with the reporting and announcement and/or
independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

GENERAL

PCCW is the premier telecommunications provider in Hong Kong and a world-class player in information and
communications technologies. As the provider of Hong Kong’s first quadruple-play experience, PCCW offers
a range of innovative media content and services across four platforms – fixed-line, broadband Internet access,
TV and mobile. In addition, the Company meets the sophisticated needs of the international business
community, while supporting network operators with cutting-edge technical services and handling large-scale IT
outsourcing projects for public and private sector organizations.

China Netcom is a state-owned enterprise established under the laws of the PRC. The China Netcom Group is
a leading broadband communications and fixed-line telecommunications operator in the PRC and is a
substantial shareholder of the Company through its indirect wholly-owned subsidiary, China Netcom BVI, and
is currently holding approximately 20% of the issued share capital of the Company.

DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context requires
otherwise:

“Company” or “PCCW” PCCW Limited, a company incorporated in Hong Kong with limited
liability and whose shares are listed on the Stock Exchange
“China Netcom” China Network Communications Group Corporation, a state-owned
enterprise established under the laws of the PRC
“China Netcom BVI” China Netcom Corporation (BVI) Limited, a company incorporated in the
British Virgin Islands, an indirect wholly-owned subsidiary of China
Netcom and is a substantial shareholder of the Company
“China Netcom Group” China Netcom and its subsidiaries and associates
“Directors” directors of the Company
“Group” PCCW and its subsidiaries
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“PRC” the People’s Republic of China, excluding Hong Kong, the Macau Special
Administrative Region and Taiwan for the purpose of this announcement
“Previous Announcements” the announcements of the Company dated August 12, 2005 and April 12,
2006

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“Stock Exchange” The Stock Exchange of Hong Kong Limited

By the Order of the Board
PCCW Limited
Philana WY Poon
Group General Counsel and Company Secretary

Hong Kong, January 4, 2008

The Directors of the Company as at the date of this announcement are as follows:

Executive Directors:
Li Tzar Kai, Richard (Chairman); Alexander Anthony Arena (Group Managing Director); Peter Anthony Allen;
Chung Cho Yee, Mico; Lee Chi Hong, Robert

Non-Executive Directors:
Sir David Ford, KBE, LVO; Zhang Chunjiang; Zuo Xunsheng (Deputy Chairman); Li Fushen

Independent Non-Executive Directors:
Prof Chang Hsin-kang; Dr The Hon Sir Li Kwok Po, David, GBS, OBE, JP; Sir Roger Lobo, CBE, LLD, JP;
Aman Mehta; The Hon Raymond George Hardenbergh Seitz