F-1/A

As filed with the Securities and Exchange Commission on June 24, 2003

Registration No. 333-13074

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 4

TO

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Chunghwa Telecom Co., Ltd.

(Exact Name of Registrant as Specified in Its Charter)

Republic of China	4812	Not Applicable
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

21-3 Hsinyi Road, Section 1

Taipei, Taiwan

Republic of China

(886)2-2344-5488

(Address and Telephone Number of Registrant’s Principal Executive Offices)

CT Corporation System

111 Eighth Avenue, 13th Floor

New York, New York 10011

(212) 894-8400

(Name, Address and Telephone Number of Agent For Service)

Copies to:

Chris Kuang-Hsiang Lin, Esq.
Simpson Thacher & Bartlett LLP
7th Floor, Asia Pacific Finance Tower
3 Garden Road, Central
Hong Kong
(852) 2514-7600 William Y. Chua, Esq.
Sullivan & Cromwell LLP
28th Floor
Nine Queen’s Road Central
Hong Kong
(852) 2826-8688

     Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

     If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.  o

     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

     If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

     If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  o

CALCULATION OF REGISTRATION FEE

			Proposed maximum		Proposed maximum		Amount of
Title of each class of securities	Amount to be		aggregate offering		aggregate		registration
to be registered	registered(1)(2)		price per share(1)		offering price(1)		fee(3)
Common shares, par value NT$10 per share(4)		750,000,000 common  shares	$	1.53	$	1,147,500,000	$	92,832.75

________________________________________________________________________________

(1)	Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(a) and (c) under the Securities Act of 1933.
(2)	Includes common shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. The common shares are not being registered for the purpose of sales outside the United States.
(3)	A registration fee of $25,000 was previously paid on January 12, 2001.
(4)	American depositary shares issuable upon deposit of the common shares registered hereby have been registered under a separate registration statement on Form F-6. Each American depositary share represents ten common shares.

     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated June 24, 2003.

Chunghwa Telecom Co., Ltd.

(Incorporated as a company limited by shares in the Republic of China)

75,000,000 American Depositary Shares

Representing 750,000,000 Common Shares

      This is an initial public offering of American depositary shares representing common shares of Chunghwa Telecom Co., Ltd. Each ADS represents ten common shares. The Ministry of Transportation and Communications of the Republic of China, representing the government of the Republic of China, is offering all of the ADSs being sold in this offering. We will not receive any proceeds from the sale of the ADSs. The ADSs are not being offered in the Republic of China. The ADSs are evidenced by American depositary receipts.

      Before this offering, there has been no public market for the ADSs. Our common shares have been listed on the Taiwan Stock Exchange since October 27, 2000 under the code “2412”. On June 23, 2003, the closing price for our common shares on the Taiwan Stock Exchange was NT$53.00 per common share, which was equivalent to approximately US$15.32 per ADS at the Federal Reserve noon buying rate of NT$34.60 to US$1.00 in effect on such date. It is estimated that the initial public offering price will be in the range of US$13.33 to US$15.32 per ADS. For factors to be considered in determining the initial public offering price, see “Underwriting” beginning on page 165.

      We intend to list the ADSs on the New York Stock Exchange under the symbol “CHT”.

      See “Risk Factors” beginning on page 6 to read about factors you should consider before buying ADSs.

      Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

	Per ADS	Total
Initial public offering price	US$	US$
Underwriting discount	US$	US$
Proceeds, before expenses, to the Ministry of Transportation and Communications	US$	US$

      The Ministry of Transportation and Communications has granted to the underwriters an option to purchase up to 11,250,000 additional ADSs at the initial public offering price less the underwriting discount.

      The underwriters expect to deliver the ADRs evidencing the ADSs on July 21, 2003.

Goldman, Sachs & Co. Merrill Lynch & Co. UBS Investment Bank

Credit Suisse First Boston Daiwa Securities SMBC Hong Kong Deutsche Bank Securities

CLSA Asia-Pacific Markets The Hongkong and Shanghai Banking Corporation Limited

Prospectus dated                     , 2003.

TABLE OF CONTENTS

Ex-1.1 Underwriting Agreement

Ex-3.1 Articles of Incorporation

Ex-4.1 Form of Deposit Agreement

Ex-23.1 Consent of T.N. Soong & Co.

PROSPECTUS SUMMARY

      In addition to this summary, we urge you to read the entire prospectus carefully, especially the discussion of the risks of investing in our ADSs under “Risk Factors” beginning on page 6, before deciding to buy our ADSs.

Chunghwa Telecom

      We are the largest telecommunications service provider in Taiwan and one of the largest in Asia in terms of revenues. As an integrated telecommunications service provider, our principal services include:

•  Fixed line services, including local, domestic long distance and international long distance telephone services;

•  Wireless services, including cellular and paging services; and

•  Internet and data services, including HiNet, our Internet service provider, asymmetrical digital subscriber line services and leased line services.

      As our traditional fixed line business has matured and new technologies have become available, we have pursued new growth opportunities in the cellular and Internet services markets. We are focusing on expanding our leading position in each of our principal lines of business:

•  We are Taiwan’s largest provider of fixed line services in terms of both revenues and subscribers;

•  We are Taiwan’s largest cellular service provider in terms of both revenues and subscribers;

•  We are Taiwan’s largest broadband Internet access provider as well as Taiwan’s largest Internet service provider in terms of subscribers; and

•  We are also a leading player in the data communications market in Taiwan.

      For the year ended December 31, 2002, our revenues were NT$179.4 billion (US$5.2 billion), our net income was NT$44.1 billion (US$1.3 billion) and our net income per share was NT$4.57 (US$0.13).

      We believe that our primary competitive strengths are:

•  Our position as the incumbent telecommunications service provider, with total telecommunications solutions, broad network coverage, extensive distribution channels, high levels of brand awareness, customer service and operational expertise, as well as comprehensive customer billing infrastructure; and

•  Our advanced network technology, research and development expertise and strong capital structure, which we believe we can build on to expand our leading position in the growing cellular and Internet services markets.

      We were established as a company on July 1, 1996 as a result of the separation of the business and regulatory functions of the Directorate General of Telecommunications. The Ministry of Transportation and Communications, on behalf of the government, currently owns approximately 79.56% of our outstanding common shares, and will own approximately 71.79% of our outstanding common shares after the completion of this offering. For so long as the government continues to own a majority of our common shares, our autonomy will continue to be limited by regulations governing state owned enterprises. In particular, the

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Ministry of Transportation and Communications currently has the ability to exercise control over the composition of our senior management and to elect a majority of our directors and supervisors. In addition, the Ministry of Transportation and Communications supervises our budget and dividend policies, as well as the determination of key employment terms for our employees, including salary, pension and discharge policies.

      Our principal executive office is located at 21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China, and our telephone number is (886)2-2344-5488. Our website address is http://www.cht.com.tw. The information on our website is not a part of this prospectus.

The Offering

      Unless otherwise indicated, the information in this prospectus assumes that the underwriters do not exercise the option granted by the Ministry of Transportation and Communications to purchase up to 11,250,000 additional ADSs. Please see “Underwriting” beginning on page 165. Unless otherwise indicated, the information in this prospectus does not take into account the common shares to be sold in the auction to be conducted by the Ministry of Transportation and Communications in the Republic of China concurrently with the offering. Please see “Principal Shareholders and Selling Shareholder” beginning on page 130.

Offering price	US$     per ADS
Selling shareholder	All of the ADSs being offered in this offering are being offered by the Ministry of Transportation and Communications, representing the Republic of China government. Approximately 79.56% of our outstanding common shares are currently owned by the Ministry of Transportation and Communications. After this offering, the Ministry of Transportation and Communications will own approximately 71.79% of our outstanding common shares.
ADSs outstanding after this offering	75,000,000 ADSs
Common shares outstanding after this offering	9,647,724,900 common shares
ADS/common share ratio	1/10
NYSE symbol	“CHT”
Use of proceeds	The Ministry of Transportation and Communications will receive all of the proceeds from the sale of the ADSs in this offering. We will not receive any proceeds from this offering.
ADS depositary	The Bank of New York

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Summary Financial Data

												As of or
												for the six months						As of or									As of or for the
			As of or for the year									ended						for the year ended									three months ended
			ended June 30,									December 31,						December 31,									March 31,
			1998			1999			2000			1999			2000			2001			2002						2002			2003
			(in billions, except per share and per pro forma ADS information)
			NT$			NT$			NT$			NT$			NT$			NT$			NT$			US$			NT$			NT$			US$
												(unaudited)															(unaudited)			(unaudited)
Income Statement Data:
Revenues				181.9			192.1			185.0			91.7			95.0			184.4			179.4			5.2			43.2			44.2			1.3
Operating costs and expenses:
	Costs of services(1)			59.8			65.8			64.8			30.5			35.6			72.7			58.1			1.7			13.5			14.2			0.4
	Marketing(1)			17.9			18.8			18.0			8.4			9.6			21.9			20.2			0.6			3.1			5.1			0.2
	General and administrative(1)			2.5			3.2			3.3			1.5			1.6			3.5			2.7			0.1			0.8			0.7			—
	Research and development(1)			2.3			2.6			2.7			1.3			1.3			2.8			2.4			0.1			0.5			0.6			—
	Depreciation and amortization
		— costs of services		35.4			34.8			34.7			17.2			18.2			36.6			37.9			1.1			9.1			9.9			0.3
	Depreciation and amortization
		— operating expenses		2.0			1.9			2.0			1.0			1.0			2.3			2.4			—			0.6			0.6			—
Total operating costs and expenses				119.9			127.1			125.5			59.9			67.3			139.8			123.7			3.6			27.6			31.1			0.9
Operating income				62.0			65.0			59.5			31.8			27.7			44.6			55.7			1.6			15.6			13.1			0.4
Other income(2)				3.7			2.7			1.8			1.1			1.2			3.7			2.5			0.1			0.7			0.6			—
Other expenses(3)				0.5			0.2			0.8			0.3			0.5			1.4			1.3			0.0			0.3			0.2			—
Income before income tax				65.2			67.5			60.5			32.6			28.4			46.9			56.9			1.7			16.0			13.5			0.4
Income tax				16.0			16.2			13.9			7.4			6.8			9.5			12.8			0.4			3.3			2.8			0.1
Net income				49.2			51.3			46.6			25.2			21.6			37.4			44.1			1.3			12.7			10.7			0.3
Net income per share(4)				5.10			5.32			4.83			2.61			2.24			3.87			4.57			0.13			1.31			1.11			0.03
Net income per pro forma equivalent ADS(5)				50.95			53.19			48.27			26.11			22.40			38.73			45.70			1.32			13.15			11.06			0.32
Balance Sheet Data:
Cash and cash equivalents				23.0			4.1			15.2			14.4			24.1			4.6			7.6			0.2			4.6			5.7			0.2
Property, plant and equipment — net				286.4			299.1			315.5			311.6			322.8			336.4			338.4			9.7			334.4			332.3			9.6
Total assets				425.8			424.9			411.9			402.7			413.4			411.4			428.6			12.3			422.1			422.1			12.1
Total debt				—			—			9.0			—			—			17.0			17.7			0.5			21.0			3.7			0.1
Total liabilities				144.0			139.5			126.2			138.4			105.2			121.7			128.6			3.7			119.7			111.0			3.2
Capital stock				96.5			96.5			96.5			96.5			96.5			96.5			96.5			2.8			96.5			96.5			2.8
Total stockholders’ equity				281.8			285.4			285.7			264.3			308.2			289.7			300.0			8.6			302.4			311.1			8.9
Cash Flow Data:
Net cash provided by operating activities				75.6			85.7			70.0			41.2			30.0			73.1			91.3			2.6			19.1			19.5			0.6
Net cash used in investing activities				(39.9	)		(49.5	)		(52.8	)		(28.8	)		(25.3	)		(53.7	)		(55.3	)		(1.6	)		(23.1	)		(7.4	)		(0.2	)
Net cash provided by (used in) financing activities				(41.0	)		(55.1	)		(6.1	)		(2.1	)		4.2			(38.9	)		(33.0	)		(0.9	)		4.0			(14.0	)		(0.4	)
Capital expenditures				39.7			49.2			53.1			29.2			25.4			52.9			43.3			1.2			11.0			7.4			0.2
Other:
Cash dividends declared per share				4.99			4.76			—			N/A			5.80	(6)		3.50			4.00			0.12			—			—			—

(1) Excludes related depreciation and amortization.

(2)	Includes interest income of NT$1,915 million, NT$1,146 million and NT$372 million for the years ended June 30, 1998, 1999 and 2000, respectively, NT$218 million and NT$264 million for the six months ended December 31, 1999 and 2000, respectively, NT$649 million and NT$187 million (US$5 million) for the years ended December 31, 2001 and 2002, respectively, and NT$18 million and NT$18 million (US$1 million) for the three months ended March 31, 2002 and 2003, respectively.
(3)	Includes interest expense of NT$162 million, NT$4 million and NT$169 million for the years ended June 30, 1998, 1999 and 2000, respectively, NT$12 million and NT$103 million for the six months ended December 31, 1999 and 2000, respectively, NT$392 million and NT$171 million (US$5 million) for the years ended December 31, 2001 and 2002, respectively, and NT$15 million and NT$10 million (US$0 million) for the three months ended March 31, 2002 and 2003, respectively.
(4)	Net income per share is the same on both an undiluted and a fully diluted basis.
(5)	Each equivalent ADS represents ten of our common shares.
(6)	For the 18 month period ended December 31, 2000.

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RISK FACTORS

      You should carefully consider the risks described below and the other information contained in this prospectus before deciding to invest in our ADSs.

Risks Relating to Our Company and the Taiwan Telecommunications Industry

Extensive regulation of state owned enterprises by the Republic of China government has limited our autonomy and will continue to limit our autonomy until the government owns less than 50% of our outstanding common shares.

      As a state owned enterprise, our autonomy is limited due to comprehensive regulations relating to many areas of our operations. See “Regulation — Laws and Regulations Relating to State Owned Enterprises and Our Privatization” beginning on page 119. For example, as a state owned enterprise, we are required, subject to limited special relief granted by the Ministry of Transportation and Communications, to undergo a lengthy governmental procurement process relating to the acquisition of goods and services. In the past, we have at times been unable to timely expand our business due to delays caused by this process, particularly with respect to the acquisition of equipment.

      Until we are privatized, our ability to rapidly respond to changing market conditions and competition will be limited in comparison to our competitors, all of whom are not controlled by the government. As a result, our position in the Taiwan telecommunications market may be overtaken by our competitors and we may not continue to be profitable.

      Under Republic of China law and regulations, we will be deemed to be a state owned enterprise until the government, together with any entity more than 50% owned by the government, holds less than 50% of our outstanding common shares. When we refer to our “privatization” in this prospectus, we mean the process through which the government plans to reduce its ownership of our outstanding common shares, including our common shares owned by entities more than 50% owned by the government, to less than 50%. When we refer to being “privatized”, we mean our status as a non-state owned entity after the completion of our privatization. The Legislative Yuan of the Republic of China passed a resolution on May 30, 2003, requiring us to hold ten offers to the general public before we may conduct any sales of our common shares through negotiated transaction. See “Regulation — Recent Resolution Passed by Legislative Yuan” beginning on page 122. This resolution may constrain the ability of the government to reduce its ownership of our outstanding common shares. Although the government has publicly announced its intention to further reduce its ownership in our company to less than 50% by December 31, 2003, we cannot assure you that the privatization will be completed by the target date or at all.

Extensive regulation of our industry may limit our flexibility to respond to market conditions and competition, and our operations may suffer.

      As a telecommunications service provider in Taiwan, we are subject to extensive regulation by and under the supervision of the Ministry of Transportation and Communications and the Directorate General of Telecommunications of the Republic of China. See “Regulation — Telecommunications Act” beginning on page 111. In addition, we have been designated by the Republic of China government as a dominant provider of fixed line and cellular services within the meaning of applicable telecommunications regulations, and as a result, we are subject to special additional requirements imposed by the Ministry of Transportation and Communications. For example, the regulation governing setting and changing of tariffs allows non-dominant telecommunications service providers greater freedom to set and change tariffs within the range set forth by the government. If we are

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unable to respond effectively to tariff changes by our competitors, our competitiveness, market position and profitability will be adversely effected.

      Furthermore, we are subject to the Statute of Chunghwa Telecom Co., Ltd. which, among other things, regulates our employment conditions and the subscription rights of our employees relating to the issuance and sale of our common shares. See “Regulation — Statute of Chunghwa Telecom Co., Ltd.” beginning on page 121.

      The regulatory framework within which we operate may limit our flexibility to respond to market conditions, competition or changes in our cost structure. In particular, future changes in tariff policies and rates could immediately and substantially decrease our revenues. In addition, we operate our businesses with approvals and licenses granted by the government. If these approvals or licenses are revoked or suspended or are not renewed, or if we are unable to obtain any additional licenses we may need to operate our business in the manner we desire, our operations will suffer. See “Regulation — Telecommunications Act — Licensing of Telecommunications Services” beginning on page 111.

Increasing competition resulting from the ongoing liberalization of the Taiwan telecommunications industry may adversely affect our business growth and profitability by causing us to lose customers, charge lower tariffs and spend more on marketing.

      We have faced increasing competition from new entrants in the Taiwan telecommunications market in recent years. In particular, the Republic of China government enacted legislation in 1996 which set the guidelines for competition in the Taiwan telecommunications industry, and multiple licenses to operate fixed line, cellular, paging and other services have been issued since 1996. Furthermore, the government has announced its intention to issue additional fixed line licenses. Three operators have begun providing fixed line services since June 2001. Since August 2001, licenses have been granted to four undersea cable operators to engage in the undersea cable leased-circuit business. In addition, in February 2002, the government awarded third generation cellular services concessions to five companies, including two new cellular operators. Many of our competitors are in alliances with leading international telecommunications service providers and have access to resources or technologies that may not be available to us. We may also be subject to competition from providers of new telecommunications services as a result of technological development and the convergence of various telecommunications services.

      In recent years, the government has made commitments to the United States and the World Trade Organization to further open Taiwan’s telecommunications sector to foreign participation. These commitments include relaxing foreign ownership limits, reducing fees for providing connection with our networks to other telecommunications operators, commonly referred to as interconnection fees, and introducing competition in monopoly sectors, such as fixed line services. The government has already satisfied many of these commitments, which in turn has resulted in or accelerated the issuance of new telecommunications services licenses.

      Increasing competition may also cause the rate of our customer growth to reverse or decline, bring about further decreases in tariff rates and necessitate increases in our selling and promotional expenses. Any of these developments could adversely affect our business growth and profitability.

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Changes in technology may render our current technologies obsolete or require us to make substantial capital investments, financing for which may not be available to us on favorable commercial terms.

      The Taiwan telecommunications industry has recently been characterized by rapid increases in the diversity and sophistication of the technologies and services offered. As a result, we expect that we will need to constantly upgrade our telecommunications technologies and services in order to respond to competitive industry conditions and customer requirements. If we fail to develop, or obtain timely access to, new technologies and equipment, or if we fail to obtain the necessary licenses to provide services using these new technologies, we may lose our customers and market share and become less profitable. In addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could be significant. In particular, we will need to make capital expenditures in the near future in order for us to effectively respond to technological changes, such as the introduction of a platform for cellular communications currently being developed that will provide a uniform standard for voice, high speed data and multimedia services, commonly referred to as third generation cellular communications technologies. To the extent these expenditures exceed our cash resources, we will be required to seek additional debt or equity financing. Our ability to obtain additional financing on favorable commercial terms will depend on a number of factors, including:

•  our financial condition;

•  the condition of the economy and the telecommunications market in Taiwan;

•  the cost of financing and conditions in financial markets; and

•  the issuance of relevant government approvals.

      The failure to obtain funding for our capital expenditures on commercially acceptable terms could jeopardize our expansion plans and seriously harm our competitive position.

If the new technologies adopted by us do not perform as expected, or if we are unable to effectively deliver new services based on these technologies in a commercially viable manner, our revenue growth and profitability will decline.

      We are pursuing a number of new growth opportunities in the broader telecommunications industry, including wireless data services and multimedia on demand services. These opportunities involve new services for which there are no proven markets. Our ability to deploy and deliver these services will depend, in many instances, on new and unproven technologies. These new technologies, such as third generation cellular communications technologies, may not perform as expected or generate an acceptable rate of return. In addition, we may not be able to successfully develop new technologies to effectively and economically deliver these services, or be able to compete successfully in the delivery of telecommunications services based on new technologies. Furthermore, the success of our wireless data services is substantially dependent on the availability of wireless data applications and devices that are being developed by third party developers. These applications or devices may not be sufficiently developed to support the deployment of our wireless data services. If we are unable to deliver commercially viable services based on the new technologies that we adopt, our revenue growth and profitability will decline.

Our ability to maintain and to expand our telecommunications networks may be affected by disruption of supplies and services from our principal suppliers.

      We rely on a limited number of leading international and domestic communications equipment manufacturers to provide network equipment and technical support. If we are

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unable to obtain adequate supplies of equipment or services in a timely manner or on acceptable commercial terms, or if there are significant increases in the cost of these supplies, our ability to maintain and to expand our telecommunications networks may be materially and adversely affected.

Our controlling shareholder may take actions that conflict with our public shareholders’ best interests.

      Immediately after this offering, the Ministry of Transportation and Communications, on behalf of the Republic of China government, will own approximately 71.79% of our outstanding common shares. Accordingly, the government will continue to have the ability to exercise control over our business, including matters relating to:

•  any sale of all or substantially all of our assets;

•  the approval of our annual budget;

•  the composition of our senior management;

•  the timing and distribution of dividends; and

•  the election of a majority of our directors and supervisors.

      In addition, the Republic of China Telecommunications Act and our articles of incorporation provide that the Ministry of Transportation and Communications has the right to subscribe for two preferred shares in the event it owns less than 50% of our outstanding common shares. The Ministry of Transportation and Communications, as the owner of these preferred shares, will have the right to veto any change in our name or our businesses and any transfer of a substantial part of our business or property. These preferred shares, if issued, will be redeemed by us at their initial issuance price of NT$10 each three years after their issuance. See “Description of Share Capital — Preferred Shares” beginning on page 135.

      The Ministry of Transportation and Communications may take actions that you may not agree with or that may not be in our or our public shareholders’ best interests.

The value of your investment may be reduced by future sales of our ADSs or common shares by us, by the Republic of China government or by other shareholders.

      Except for the sale of ADSs to the underwriters in this offering, we and the Ministry of Transportation and Communications have agreed with the underwriters, subject to certain exceptions, not to offer, sell, contract to sell, hedge or otherwise dispose of any of our common shares or securities convertible into or exchangeable for our common shares, including ADSs, for a period of 90 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters. In addition, the Ministry of Transportation and Communications has agreed with the underwriters, subject to certain exceptions, not to, after the completion of our privatization, offer, sell, contract to sell, hedge or otherwise dispose of any of our common shares, or securities convertible into or exchangeable for our common shares, including ADSs, until the earlier of (1) 180 days after the completion of our privatization and (2) December 31, 2004, except with the prior written consent of the representatives of the underwriters. Approximately 71.79% of our outstanding common shares, after the completion of this offering, are subject to these lock-up agreements. The representatives may, in their discretion, waive or terminate these restrictions. See “Shares Eligible for Future Sale” beginning on page 132 for a discussion of restrictions that may apply to future sales of our ADSs or common shares and for a discussion of exceptions to the lock-ups described above.

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      Since we became a publicly listed company in the Republic of China in October 2000, the Republic of China government has sold a total of 1,971,771,245 common shares of our company, which account for 20.44% of our outstanding common shares. The Republic of China government has publicly announced its intention to further reduce its ownership in us to less than 50% through future offerings of our ADSs or common shares. The Ministry of Transportation and Communications has informed us that the target date for completion of our privatization is December 31, 2003. Although the target date may change, sales of substantial amounts of ADSs or common shares in the public market or the perception that future sales may occur could depress the prevailing market price of our ADSs and common shares.

Our competitors may be able to elect one or more of our directors, and these directors may not always act in our best interests.

      The Ministry of Transportation and Communications conducted an auction of our common shares in December 2002, and the winning bidders for the auction included Taiwan Cellular Corporation and an affiliate of Taiwan Fixed Network Co., Ltd., which are our competitors in cellular and fixed line businesses, respectively. We are not aware of any voting arrangement among these winning bidders. However, if all of those winning bidders were to agree to allow either Taiwan Cellular Corporation or Taiwan Fixed Network Co., Ltd. to vote all common shares purchased by them, each of these two companies would have enough votes to elect one director to represent the winning bidders. The next scheduled election of our directors will be in June 2005, but an election may be scheduled prior to June 2005. We cannot assure you that any director elected to represent the winning bidders on our board of directors will always act in our best interests, nor can we assure you that these directors will direct to us any business opportunities that represent growth opportunities or are otherwise beneficial to us. Furthermore, our directors may possess certain confidential information relating to our business and operations, and any misuse of the confidential information may put us at a competitive disadvantage.

If we fail to maintain a good relationship with our labor union, a work stoppage or labor unrest could occur and the quality of our services and corporate reputation could suffer.

      We currently have the largest labor union in Taiwan. As of March 31, 2003, approximately 99% of our employees were members of our principal labor union. Since our incorporation in 1996, we have experienced disputes with our labor union on such issues as employee benefits and retirement benefits in connection with our privatization as well as the right to protest. Although we have not experienced a work stoppage or a general strike, our labor union initiated a demonstration in August 2000 to express concerns over job security after our privatization. Any deterioration of our relationship with our union could result in a work stoppage or union unrest. Any work stoppage or any threat to take such an action could significantly reduce the quality of our services and harm our reputation, as well as disrupt our business operations.

Actual or perceived health risks related to cellular telephones and base stations could lead to decreased cellular telephone usage and difficulties in increasing network coverage and could expose us to potential liability.

      According to some published reports, the electromagnetic signals from cellular telephones and cellular base stations may pose health risks or interfere with the operation of electronic equipment. Although the findings of those reports are disputed, actual or perceived risks of using cellular communications devices or base stations could have an adverse impact on cellular service providers, including us. For example, our cellular

10

telephone customer base could be reduced, our cellular telephone customers may reduce their cellular telephone usage or we could encounter difficulties in obtaining sites for additional cellular base stations required to expand our network coverage. As a result, our cellular business may generate less revenue and our results of operations may suffer. In addition, we could be exposed to potential liability for any health problems caused by mobile handsets and base stations.

We may be sanctioned or lose our licenses for violations of limits on foreign ownership of our common shares and these limits may adversely affect our ability to obtain financing.

      The laws of the Republic of China limit foreign ownership of our common shares. Currently, the Ministry of Transportation and Communications limits direct and indirect foreign ownership of our common shares to 20%. If we fail to comply with the applicable foreign ownership limitations, our licenses to operate some of our businesses could be revoked. See “Regulation — Telecommunications Act — Foreign Ownership Limitations” beginning on page 119. Because we are unable to control ownership of our common shares or ADSs representing our common shares, and because we have no ability to stop transfers among shareholders, force particular shareholders to sell their shares, or otherwise remedy a breach of these foreign ownership limits, we may lose our licenses through no fault of our own and we do not have any effective means to protect our business from this risk. These limitations may also adversely affect our ability to obtain adequate financing to fund our future capital requirements or to obtain strategic partners and alternate forms of financing may not be available on terms favorable to us.

The market value of your investment may fluctuate due to financial results released in the Republic of China that are prepared on a basis that is different from generally accepted accounting principles in the United States and that are subject to government review, audit and adjustment.

      Until we are privatized, under laws and regulations applicable to state owned enterprises, our financial statements prepared for reporting purposes in the Republic of China will be subject to government review and audit. The government has required in the past, and may require in the future, adjustments to be made to our internally prepared and audited financial statements prior to approving our official government audited financial statements. These adjustments have in the past affected our reported revenues, expenses, income before tax and income available for distribution of dividends, and may do so in the future. However, these adjustments have not had any material impact on our financial statements presented in this prospectus. The financial statements presented in this prospectus have been prepared in accordance with generally accepted accounting principles in the United States, or US GAAP, and were not subject to adjustment under the government review and audit process. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Our Financial Reporting Obligations” beginning on page 34.

      Our ongoing financial reporting with the Securities and Exchange Commission will be under US GAAP or under generally accepted accounting principles in the Republic of China, or ROC GAAP, with a reconciliation to US GAAP in accordance with the requirements of the Securities and Exchange Commission. However, we will also be preparing and disseminating financial statements and financial data for our local reporting purposes that are prepared on a basis other than US GAAP as described in the preceding paragraph. Our reported financial condition and results of operations under US GAAP and under other accounting principles and standards may differ significantly. The price of our common shares in the domestic

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market may be based on, among other things, our financial statements prepared for our local reporting purposes, and this in turn may affect the market price of our ADSs.

Risks Relating to the Republic of China

   Any further economic downturn or decline in the growth of the population in Taiwan may adversely affect our financial position, operations and future growth.

      We conduct most of our operations and generate most of our revenues in Taiwan. As a result, any further decline in the Taiwan economy or a decline in the growth of the population in Taiwan may adversely affect our financial condition and results of operations. For example, the 1997 Asian financial crisis and the resulting economic downturn in Taiwan resulted in lower revenues and profitability for our company. Although economic conditions in Taiwan improved from the second half of 1999 through 2000, the Taiwan economy has slowed down since early 2001. In addition, the global slowdown in technology expenditures has adversely affected the Taiwan economy, which is highly dependent on the technology industry. Moreover, the economies of the United States and the European Union have been experiencing a significant slowdown, and this slowdown has been exacerbated by the terrorist attacks in the United States in September 2001 and the military operations against Iraq in the early part of 2003. We cannot assure you that economic conditions in Taiwan will improve in the future or that our operations will not be affected by a continued deterioration in the Taiwan economy.

The recent outbreak of severe acute respiratory syndrome may adversely affect our business and operations, as well as our financial condition and results of operations.

      Since early 2003, Taiwan, Mainland China, Hong Kong, Singapore and certain other regions have been experiencing an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome. We cannot predict at this time the effect this outbreak could have on our company. In particular, this outbreak may disrupt our ability to adequately staff our business, and may generally disrupt our operations. If any of our employees is suspected to have contracted severe acute respiratory syndrome, we may under certain circumstances be required to quarantine such employees and the affected areas of our premises. As a result, we may have to temporarily suspend part of or all of our operations. Furthermore, this outbreak may restrict the level of economic activity in affected regions, including Taiwan, which may also adversely affect our business and prospects. As a result, we cannot assure you that the recent outbreak of severe acute respiratory syndrome would not have an adverse effect on our financial condition and results of operations.

We face substantial political risks associated with doing business in Taiwan, particularly due to the tense relationship between the Republic of China and the People’s Republic of China, that could negatively affect the value of your investment.

      Our principal executive offices and substantially all our assets are located in Taiwan and substantially all of our revenues are derived from our operations in Taiwan. Accordingly, our business and results of operations and the market price of our common shares and the ADSs may be affected by changes in Republic of China governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social developments in or affecting Taiwan which are outside of our control. Taiwan has a unique international political status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The People’s Republic of China claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and cultural relations have been established during recent years between the Republic of China and the People’s Republic of

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China, the People’s Republic of China has refused to renounce the possibility that it may at some point use force to gain control over Taiwan. Relations between the Republic of China and the People’s Republic of China have been strained in recent years for a variety of reasons, including the government of the People’s Republic of China’s position on the “One China” policy. Any tension between the Republic of China and the People’s Republic of China may adversely affect the securities markets in Taiwan and elsewhere and the market prices of our common shares and ADSs.

Taiwan is susceptible to severe earthquakes and typhoons that could severely disrupt the normal operation of our business and adversely affect our earnings.

      All of our properties are located in Taiwan, which is susceptible to earthquakes and typhoons. On September 21, 1999, the central part of Taiwan experienced a severe earthquake that caused significant property damage and loss of life. This earthquake damaged our network facilities and adversely affected our operations. In particular, we suffered property losses totaling approximately NT$1 billion. Since that time, other parts of Taiwan have also experienced earthquakes that damaged or disrupted the businesses of many other companies. In addition, parts of our network were damaged, and our operations were disrupted, by two typhoons in 2001. As a result of these typhoons, we suffered property losses totaling approximately NT$200 million. We do not carry any insurance to cover damages caused by earthquakes or typhoons, or any resulting business interruption. In the event of a major earthquake, typhoon or other natural disaster in Taiwan, our business could be severely disrupted and our results of operations could be adversely affected.

Shareholders may have more difficulty protecting their interests under the laws of the Republic of China than they would under the laws of the United States.

      Our corporate affairs are governed by our articles of incorporation, the Statute of Chunghwa Telecom Co., Ltd., and by the laws governing corporations incorporated in the Republic of China. The rights of shareholders and the responsibilities of management and the members of the board of directors of Taiwan companies are different from those applicable to a corporation incorporated in the United States. For example, controlling shareholders of Taiwan companies do not owe fiduciary duties to minority shareholders. In addition, as a state owned enterprise, our corporate affairs are governed by laws and regulations not generally applicable to other Taiwan companies. Therefore, holders of our common shares and ADSs may have more difficulty in protecting their interests in connection with actions taken by our management or members of our board of directors than they would as public shareholders of a United States corporation.

The market value of your investment may fluctuate due to the volatility of, and government intervention in, the Taiwan securities market.

      Our common shares are traded on the Taiwan Stock Exchange, which has a smaller market capitalization and is more volatile than the securities markets in the United States and many European countries. The market value of our ADSs may fluctuate in response to the fluctuation of the trading price of our common shares on the Taiwan Stock Exchange. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices and trading volumes of listed securities and there are currently limits on the range of daily price movements. In recent years, the Taiwan Stock Exchange Index reached a peak of 10,202.2 in February 2000 and subsequently fell to a low of 3,446.3 in October 2001. On March 13, 2000, the Taiwan Stock Exchange Index experienced a 617 point drop, which represented the single largest decrease in its history. During 2002, the Taiwan Stock Exchange Index

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peaked at 6,462.3 on April 22, 2002, and reached a low of 3,850.0 on October 11, 2002. On June 23, 2003, the Taiwan Stock Exchange Index closed at 4,921.7. The Taiwan Stock Exchange has experienced certain problems, including market manipulation, insider trading and payment defaults. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Taiwan companies, including our ADSs and common shares, in both the domestic and the international markets.

      In response to declines and volatility in the securities markets in Taiwan, the Republic of China government formed the National Financial Stabilization Fund to support these markets through open market purchases of shares in Taiwan companies from time to time. The details of the transactions of the National Financial Stabilization Fund have not been made public. In addition, the government’s Labor Insurance Fund and other funds associated with the government have in the past purchased, and may from time to time purchase, shares of Taiwan companies listed on the Taiwan Stock Exchange or other markets. As a result of these activities, the market price of common shares of the Taiwan companies may have been and may currently be higher than the prices that would otherwise prevail in the open market. Market intervention by government entities, or the perception that such activity is taking place, may take place or has ceased, may cause sudden movements in the market prices of the securities of Taiwan companies, which may affect the market price and liquidity of our common shares and ADSs.

Risks Relating to Ownership of Our ADSs

There has been no prior market for our ADSs and this offering may not result in an active or liquid market for our ADSs.

      Prior to this offering, there has not been a public market for our ADSs. Following the offering, the Taiwan Stock Exchange will remain the only market for our common shares. We have applied to list our ADSs on the New York Stock Exchange. An active public market in our ADSs may not develop or be sustained after the offering. In addition, if a significant number of our ADS holders withdraw the underlying common shares from our ADS facility and no additional ADSs are issued, the liquidity of our ADSs would be adversely affected. The initial public offering price of the ADSs is expected to be determined by negotiations between the Ministry of Transportation and Communications and the representatives of the underwriters with reference to a variety of factors, including the market price of our common shares, prevailing market and economic conditions and our recent financial performance. The initial public offering price of the ADSs may not be indicative of prices that will prevail in the trading market. Investors may not be able to resell their ADSs at or above the initial public offering price. Market prices of telecommunications companies’ shares have been and continue to be extremely volatile. As a result, volatility in the price of our ADSs may be caused by factors outside of our control and may be unrelated or disproportionate to our operating results.

Restrictions on the ability to deposit our common shares into our ADS program may adversely affect the liquidity and price of the ADSs.

      Under current law of the Republic of China, specific prior approval of the Securities and Futures Commission of the Republic of China may be required in order to deposit our common shares into our ADS program. See “Foreign Investment and Exchange Controls in Taiwan — Depositary Receipts” beginning on page 157. As a result of the limited ability to deposit common shares into our ADS program, the prevailing market price of our ADSs may differ from the prevailing market price of the equivalent number of our common shares on the Taiwan Stock Exchange.

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You will be more restricted in your ability to exercise voting rights than the holders of our common shares, which may diminish your influence over our corporate affairs and may reduce the value of your ADSs.

      Holders of American depositary receipts evidencing our ADSs may exercise voting rights with respect to the common shares represented by these ADSs only in accordance with the provisions of the deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our common shares, the depositary bank will, as soon as practicable thereafter if requested by us in writing, mail to ADS holders the notice of the meeting sent by us, voting instruction forms and a statement as to the manner in which instructions may be given by the holders.

      ADS holders will not generally be able to exercise voting rights attaching to the deposited securities on an individual basis. Under the deposit agreement, the voting rights attaching to the deposited securities must be exercised as to all matters subject to a vote of shareholders collectively in the same manner, except in the case of an election of directors and supervisors. The election of our directors and supervisors is by means of cumulative voting. In the event the depositary does not receive voting instructions from ADS holders in accordance with the deposit agreement, our chairman or his or her designee will be entitled to vote the common shares represented by the ADSs in the manner he or she deems appropriate in his or her discretion. See “Description of American Depositary Shares — Voting Rights” beginning on page 144 for a more detailed discussion of the manner in which a holder of ADSs can exercise its voting rights.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

      We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer you those rights unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

      If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

Changes in exchange controls that restrict your ability to convert proceeds received from your ownership of ADSs may have an adverse effect on the value of your investment.

      Your ability to convert proceeds received from your ownership of ADSs depends on existing and future exchange control regulations of the Republic of China. Under the current laws of the Republic of China, an ADS holder or the depositary, without obtaining further approvals from the Central Bank of China or any other governmental authority or agency of

15

the Republic of China, may convert NT dollars into other currencies, including U.S. dollars, in respect of:

•  the proceeds of the sale of common shares represented by ADSs or received as share dividends with respect to the common shares and deposited into the depositary receipt facility; and

•  any cash dividends or distributions received from the common shares.

      In addition, the depositary may also convert into NT dollars incoming payments for purchases of common shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the common shares underlying your ADSs and become a holder of our common shares, you may convert into NT dollars subscription payments for rights offerings. The depositary may be required to obtain foreign exchange approval from the Central Bank of China on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights of new common shares. Although it is expected that the Central Bank of China will grant approval as a routine matter, required approvals may not be obtained in a timely manner, or at all.

      Under the Republic of China Foreign Exchange Control Law, the Executive Yuan may, without prior notice but subject to subsequent legislative approval, impose foreign exchange controls or other restrictions in the event of, among other things, a material change in international economic conditions.

You are required to appoint several local agents in Taiwan if you withdraw common shares from our ADS facility and become our shareholder, which may make your ownership burdensome.

      If you are a non-Taiwan person and wish to withdraw common shares represented by your ADSs from our ADS facility and hold those common shares, you are required under the current laws and regulations of the Republic of China to appoint an agent, also referred to as a tax guarantor, in the Republic of China. A tax guarantor must meet certain qualifications set by the Ministry of Finance of the Republic of China and, upon appointment, becomes a guarantor of your Republic of China tax obligations. If you wish to repatriate profits derived from the sale of withdrawn common shares or cash dividends or interest on funds derived from the withdrawn common shares, you will be required to submit evidence of your appointment of a tax guarantor and the approval of the appointment by the Republic of China tax authorities. You may not be able to appoint and obtain approval for a tax guarantor in a timely manner.

      In addition, under the current laws of the Republic of China, you will be required to appoint a local agent in Taiwan to, among other things, open a securities trading account with a local securities brokerage firm, remit funds and exercise shareholders’ rights. You must appoint a local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without this local agent and the custodian and the opening of the trading account, you will not be able to hold, sell or otherwise transfer our common shares on the Taiwan Stock Exchange.

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FORWARD LOOKING STATEMENTS CONTAINED

IN THIS PROSPECTUS MAY NOT BE REALIZED

      This prospectus contains forward-looking statements, including statements regarding:

•  our business and operating strategy;

•  our network expansion plans;

•  our business, operations and prospects;

•  our financial condition and results of operations;

•  our dividend policy;

•  the telecommunications industry regulatory environment; and

•  future developments in the telecommunications industry in Taiwan.

      These forward looking statements are generally indicated by the use of forward looking terminology such as believe, expect, anticipate, estimate, plan, project, may, will or other similar words that express an indication of actions or results of actions that may or are expected to occur in the future. These statements are subject to risks, uncertainties and assumptions, many of which are beyond our control. You should not place undue reliance on these statements, which apply only as of the date of this prospectus. These forward looking statements are based on our own information and on information from other sources we believe to be reliable. Actual results may differ materially from those expressed or implied by these forward looking statements. Factors that could cause differences include, but are not limited to, those discussed under “Risk Factors” beginning on page 6. Although we will become a reporting company after this offering and have ongoing disclosure obligations under United States federal securities laws, we are not undertaking to publicly update or revise any forward looking statements in this prospectus, whether as a result of new information, future events or otherwise. Because of these risks, uncertainties and assumptions, the forward looking events and circumstances discussed in this prospectus might not occur in the way we expect, or at all.

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USE OF PROCEEDS

      The Ministry of Transportation and Communications of the Republic of China will receive all of the proceeds from the sale of the ADSs in this offering. We will not receive any proceeds from this offering.

DIVIDEND POLICY

      The following table sets forth the dividends declared on each of our common shares and in the aggregate for each of the fiscal years ended June 30, 1998 and 1999, for the 18 months ended December 31, 2000 and the year ended December 31, 2001. All of these dividends were paid, in the fiscal year following the period with respect to which the dividends relate, to the Republic of China government and, in the case of our dividend distribution for the 18 months ended December 31, 2000 and the year ended December 31, 2001, also to our public shareholders.

	Cash dividend
	per common share		Total dividends
			(in billions)
Fiscal year ended June 30, 1998	NT$	4.99	NT$	48.1
Fiscal year ended June 30, 1999		4.76		45.9
18 months ended December 31, 2000		5.80		56.0
Year ended December 31, 2001		3.50		33.8

      With respect to dividend distributions for the year ended December 31, 2002, we plan to recommend to our shareholders the approval of cash dividends of NT$4.0 per common share. We currently intend to set the record date on July 30, 2003, subject to the approval of our board of directors. The amount of our net income is determined for these purposes in accordance with Chunghwa Telecom Internal Accounting Principles, which take into account ROC GAAP and relevant laws and regulations and government guidelines applicable to state owned enterprises. Our net income after our privatization will be determined in accordance with ROC GAAP.

      We have historically distributed cash dividends to our shareholders equal to approximately 90% of our annual net income. We intend to maintain this dividend payout ratio in the future, including after our privatization, subject to a number of commercial factors, including the interests of our shareholders, cash requirements for future capital expenditures and investments, as well as relevant industry and market practice. We cannot assure you that we will pay dividends at the same rate as we have in the past. The amount of our net income determined for purposes of calculating our annual dividend payout may differ from the amount of our net income determined in accordance with US GAAP.

      In order to improve our capital efficiency and return to shareholders, our board of directors has approved repurchases of our common shares of between 7% and 10% of our total outstanding common shares by the end of 2003. The Ministry of Transportation and Communications intends to participate in the share repurchases, subject to the approval of the Executive Yuan of the Republic of China. In the event we repurchase our common shares, the amount of retained earnings otherwise available for our dividend payout, which is determined in accordance with Chunghwa Telecom Internal Accounting Principles, could be reduced as the purchase price per common share in excess of its par value and our capital surplus per common share, determined in accordance with Chunghwa Telecom Internal Accounting Principles, multiplied by the amount of common shares repurchased, would be charged to retained earnings when such repurchased common shares are cancelled. Depending on the size and purchase price of any repurchase of our outstanding common shares, our dividend payout ratio may be reduced to below 90%.

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      Except in limited circumstances, the Republic of China Company Law does not permit a company to distribute dividends or to make any other distributions to shareholders for any fiscal year in which the company does not have net income or retained earnings (excluding reserves). In addition, before distributing a dividend or making any other distribution to shareholders, companies must recover any past losses, pay all outstanding taxes and set aside a legal reserve equal to 10% of net income until the legal reserve reaches an amount equal to at least 100% of paid-in share capital. See “Description of Share Capital — Dividends and Distributions” beginning on page 135. In addition, our articles of incorporation provide that not less than 10% of the total dividends must be distributed in the form of cash. However, if the cash dividends to be distributed do not exceed NT$0.10 per share, the dividends may be distributed in the form of shares. The government has stated its intention that future dividends to be paid on our common shares, if any, will be paid in accordance with the Republic of China Company Law.

      Holders of outstanding common shares on a dividend record date will be entitled to the full dividend declared without regard to any subsequent transfer of the common shares. Payment of dividends in respect of a particular year, if any, will be made in the following year after approval by our shareholders at the annual general meeting of shareholders.

      Subject to the terms of the deposit agreement for the ADSs, you will be entitled to receive dividends on common shares represented by ADSs to the same extent as the holders of common shares. Any cash dividends will be paid to the depositary in NT dollars and, except as otherwise described under “Description of American Depositary Shares — Dividends and Other Distributions” beginning on page 141, converted by the depositary into U.S. dollars and paid to you.

      In the past, we have periodically paid to the government, at its request, amounts in anticipation of dividends that the government, as our sole shareholder, expected to approve at our next annual shareholders meeting. These payments have been recorded as shareholder advances. In January 2000, a payment of NT$13.0 billion was made to the government in this regard in anticipation of dividends in respect of the fiscal period beginning on July 1, 1999 and ended on December 31, 2000. This amount was refunded by the government to us, without interest, on December 28, 2000.

      For information relating to Republic of China withholding taxes payable on dividends, see “Taxation — Republic of China Taxation — Dividends” beginning on page 159. For information relating to the foreign exchange approvals required in Taiwan for the conversion by the depositary of dividends or proceeds from the sale of common shares from NT dollars into U.S. dollars for payment to you, see “Foreign Investment and Exchange Controls in Taiwan — Depositary Receipts” beginning on page 157.

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DILUTION

      As of March 31, 2003, our net tangible book value per common share was US$0.83. Net tangible book value per common share represents the amount of total tangible assets, minus the amount of total liabilities, divided by the total number of common shares outstanding. It was calculated using an exchange rate of NT$34.75 per US$1.00. As of the same date, our net tangible book value per ADS was US$8.25. Net tangible book value per ADS is calculated by multiplying the net tangible book value per common share by ten, which is the number of common shares represented by each ADS. No change in our net tangible book value per common share or net tangible book value per ADS is attributable to the sale of the ADSs in this offering. Accordingly, dilution in net tangible book value per ADS represents the difference between the amount per ADS paid by purchasers of ADSs in the offering and US$8.25, the net tangible book value per ADS.

      The following table illustrates this dilution on a per ADS basis assuming that the initial public offering price per ADS is US$14.33.

Assumed initial public offering price per ADS	US$	14.33
Net tangible book value per ADS	US$	8.25
Amount of dilution in net tangible book value per ADS to purchasers of ADSs	US$	6.08

CAPITALIZATION

      The following table sets forth our short-term debt and capitalization as of March 31, 2003. You should read this table together with our financial statements, including the related notes, appearing elsewhere in this prospectus. Because the Ministry of Transportation and Communications is offering all the ADSs being sold in this offering and we will not receive any of the proceeds from this offering, our capitalization will not be affected by this offering.

		As of March 31,
		2003
		NT$		US$
		(in millions)
		(unaudited)
Short-term debt:
Short-term debt			3,000		86
Capitalization:
Long-term debt(1)			700		20
Total stockholders’ equity
Common shares, par value NT$10 per share: Authorized, issued and outstanding — 9,647,724,900 shares			96,477		2,776
Capital surplus			134,276		3,864
Retained earnings			80,347		2,312
	Total stockholders’ equity		311,100		8,952
	Total capitalization		311,800		8,972

(1)  All of this debt is unsecured and unguaranteed.

      As of the date of this prospectus, there has been no material change to our capitalization as set forth above.

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EXCHANGE RATES

      Fluctuations in the exchange rate between NT dollars and U.S. dollars will affect the U.S. dollar equivalent of the NT dollar price of our common shares on the Taiwan Stock Exchange and, as a result, will likely affect the market price of our ADSs. These fluctuations will also affect the U.S. dollar conversion by the depositary of cash dividends paid in NT dollars on, and the NT dollar proceeds received by the depositary from any sale of, our common shares represented by ADSs.

      The following table sets forth, for the periods indicated, information concerning the number of NT dollars for which one U.S. dollar could be exchanged based on the noon buying rate for cable transfers in NT dollars as certified for customs purposes by the Federal Reserve Bank of New York.

		NT dollars per U.S. dollar Noon Buying Rate
		Average(1)		High		Low		Period-End
1999			32.281		33.400		31.390		31.390
2000			31.366		33.250		30.350		33.170
2001			33.911		35.130		32.230		35.000
2002			33.526		35.160		32.850		34.700
	December		34.799		34.890		34.700		34.700
2003
	January		34.571		34.760		34.400		34.610
	February		34.734		34.819		34.610		34.780
	March		34.721		34.800		34.580		34.750
	April		34.824		34.980		34.790		34.850
	May		34.697		34.850		34.600		34,710
	June (through June 23)		34.646		34.710		34.520		34.600

Source:  Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.

(1)  Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.

      For information relating to foreign exchange approvals required in the Republic of China for the conversion by the depositary of dividends on common shares or proceeds from the sale of common shares from NT dollars into U.S. dollars and the payment of these dividends or proceeds to ADS holders, see “Foreign Investment and Exchange Controls in Taiwan — Depositary Receipts” beginning on page 157.

      We publish our financial statements in NT dollars, the lawful currency of the Republic of China. This prospectus contains translations of NT dollar amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from NT dollars to U.S. dollars and from U.S. dollars to NT dollars in this prospectus were made at a rate of NT$34.75 to US$1.00, the noon buying rate in effect as of March 31, 2003 rounded down to the nearest hundredth. No representation is made that the NT dollar or U.S. dollar amounts referred to in the prospectus could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all. On June 23, 2003, the noon buying rate was NT$34.60 to US$1.00.

21

MARKET PRICE INFORMATION FOR OUR COMMON SHARES

      Our common shares have been listed on the Taiwan Stock Exchange since October 27, 2000 under the code “2412”. The following table sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the Taiwan Stock Exchange for the common shares, and the high and low of the daily closing values of the Taiwan Stock Exchange Index.

									Taiwan Stock
			Closing price per						Exchange
			common share						Index
							Average daily
			High		Low		trading volume		High		Low
			(in thousands of
			common shares)
2000
		October (since October 27)	NT$	100.5	NT$	94.0		1,169		5,805.2		5,544.2
		November		97.0		84.0		11,885		6,089.6		4,845.2
		December		96.5		75.0		3,868		5,384.4		4,614.6
2001
	First Quarter			84.0		61.0		4,561		6,104.2		4,894.8
	Second Quarter			68.5		46.4		3,023		5,608.5		4,768.6
	Third Quarter			47.5		39.6		2,430		4,886.9		3,493.8
	Fourth Quarter			56.0		44.0		3,588		5,551.2		3,446.3
2002
	First Quarter			52.5		48.8		1,968		6,242.6		5,488.3
	Second Quarter			55.0		49.9		2,347		6,462.3		5,071.8
	Third Quarter			55.0		43.2		2,475		5,416.5		4,186.0
	Fourth Quarter			51.5		45.7		2,133		4,823.7		3,850.0
		December		51.5		47.7		3,030		4,823.7		4,452.5
2003
	First Quarter			58.0		50.0		2,977		5,078.8		4,260.5
		January		57.0		50.0		3,715		5,078.8		4,524.9
		February		58.0		52.0		3,045		4,833.6		4,432.5
		March		54.0		51.5		2,256		4,599.3		4,260.5
	Second Quarter (through June 23)			54.5		49.7		5,628		5,048.9		4,139.5
		April		54.5		50.0		4,870		4,658.3		4,139.5
		May		51.5		49.8		5,143		4,555.9		4,187.8
		June (through June 23)		53.0		49.7		7,419		5,048.9		4,678.1

      The performance of the Taiwan Stock Exchange has in recent years been characterized by extreme price volatility. There are currently limits on the range of daily price movements on the Taiwan Stock Exchange. See “The Securities Markets of Taiwan — Price Limits, Commissions, Transaction Tax and Other Matters” beginning on page 152.

      Purchases of shares of Taiwan companies on the Taiwan Stock Exchange or other markets by the National Financial Stabilization Fund, the Labor Insurance Fund or other funds associated with the government of the Republic of China may have caused and may in the future cause the price of shares of Taiwan companies to be higher than the prices that would otherwise prevail in the open market. See “The Securities Markets of Taiwan — National Financial Stabilization Fund” beginning on page 152.

22

SELECTED FINANCIAL DATA

      The selected income statement data and cash flow data for the year ended June 30, 2000, the six months ended December 31, 2000 and the years ended December 31, 2001 and 2002, and the selected balance sheet data as of June 30, 2000 and December 31, 2000, 2001 and 2002, set forth below are derived from our financial statements included in this prospectus and should be read in conjunction with, and are qualified in their entirety by reference to, these financial statements and the related notes. These financial statements have been audited by T.N. Soong & Co., a member firm of Deloitte Touche Tohmatsu, independent certified public accountants. T.N. Soong & Co. and Deloitte & Touche (Taiwan) established Deloitte & Touche effective June 1, 2003. The selected income statement data and cash flow data for the three months ended March 31, 2002 and 2003 and the selected balance sheet data as of March 31, 2002 and 2003 are derived from our unaudited financial statements included in this prospectus and should be read in conjunction with, and are qualified in their entirety by reference to, these unaudited financial statements and the related notes. The selected income statement data and cash flow data for the years ended June 30, 1998 and 1999 and the selected balance sheet data as of June 30, 1998 and 1999 set forth below are derived from our audited financial statements not included in this prospectus. The selected income statement data and cash flow data for the six months ended December 31, 1999 and the selected balance sheet data as of December 31, 1999 set forth below are derived from our unaudited financial statements not included in this prospectus.

									As of or
									for the six months				As of or						As of or for the
			As of or for the year						ended				for the year ended						three months ended
			ended June 30,						December 31,				December 31,						March 31,
			1998		1999		2000		1999		2000		2001		2002				2002		2003
			(in billions, except per share and per pro forma ADS information)
			NT$		NT$		NT$		NT$		NT$		NT$		NT$		US$		NT$		NT$		US$
									(unaudited)										(unaudited)		(unaudited)
Income Statement Data:
Revenues				181.9		192.1		185.0		91.7		95.0		184.4		179.4		5.2		43.2		44.2		1.3
Operating costs and expenses:
	Costs of services(1)			59.8		65.8		64.8		30.5		35.6		72.7		58.1		1.7		13.5		14.2		0.4
	Marketing(1)			17.9		18.8		18.0		8.4		9.6		21.9		20.2		0.6		3.1		5.1		0.2
	General and administrative(1)			2.5		3.2		3.3		1.5		1.6		3.5		2.7		0.1		0.8		0.7		—
	Research and development(1)			2.3		2.6		2.7		1.3		1.3		2.8		2.4		0.1		0.5		0.6		—
	Depreciation and amortization
		— costs of services		35.4		34.8		34.7		17.2		18.2		36.6		37.9		1.1		9.1		9.9		0.3
	Depreciation and amortization
		— operating expenses		2.0		1.9		2.0		1.0		1.0		2.3		2.4		—		0.6		0.6		—
Total operating costs and expenses				119.9		127.1		125.5		59.9		67.3		139.8		123.7		3.6		27.6		31.1		0.9
Operating income				62.0		65.0		59.5		31.8		27.7		44.6		55.7		1.6		15.6		13.1		0.4
Other income(2)				3.7		2.7		1.8		1.1		1.2		3.7		2.5		0.1		0.7		0.6		—
Other expenses(3)				0.5		0.2		0.8		0.3		0.5		1.4		1.3		0.0		0.3		0.2		—
Income before income tax				65.2		67.5		60.5		32.6		28.4		46.9		56.9		1.7		16.0		13.5		0.4
Income tax				16.0		16.2		13.9		7.4		6.8		9.5		12.8		0.4		3.3		2.8		0.1
Net income				49.2		51.3		46.6		25.2		21.6		37.4		44.1		1.3		12.7		10.7		0.3
Net income per share(4)				5.10		5.32		4.83		2.61		2.24		3.87		4.57		0.13		1.31		1.11		0.03
Net income per pro forma equivalent ADS(5)				50.95		53.19		48.27		26.11		22.40		38.73		45.70		1.32		13.15		11.06		0.32
Balance Sheet Data:
Cash and cash equivalents				23.0		4.1		15.2		14.4		24.1		4.6		7.6		0.2		4.6		5.7		0.2
Property, plant and equipment — net				286.4		299.1		315.5		311.6		322.8		336.4		338.4		9.7		334.4		332.3		9.6
Total assets				425.8		424.9		411.9		402.7		413.4		411.4		428.6		12.3		422.1		422.1		12.1
Total debt				—		—		9.0		—		—		17.0		17.7		0.5		21.0		3.7		0.1
Total liabilities				144.0		139.5		126.2		138.4		105.2		121.7		128.6		3.7		119.7		111.0		3.2
Capital stock				96.5		96.5		96.5		96.5		96.5		96.5		96.5		2.8		96.5		96.5		2.8

23

										As of or
										for the six months						As of or									As of or for the
	As of or for the year									ended						for the year ended									three months ended
	ended June 30,									December 31,						December 31,									March 31,
	1998			1999			2000			1999			2000			2001			2002						2002			2003
	(in billions, except per share and per pro forma ADS information)
	NT$			NT$			NT$			NT$			NT$			NT$			NT$			US$			NT$			NT$			US$
										(unaudited)															(unaudited)			(unaudited)
Total stockholders’ equity		281.8			285.4			285.7			264.3			308.2			289.7			300.0			8.6			302.4			311.1			8.9
Cash Flow Data:
Net cash provided by operating activities		75.6			85.7			70.0			41.2			30.0			73.1			91.3			2.6			19.1			19.5			0.6
Net cash used in investing activities		(39.9	)		(49.5	)		(52.8	)		(28.8	)		(25.3	)		(53.7	)		(55.3	)		(1.6	)		(23.1	)		(7.4	)		(0.2	)
Net cash provided by (used in) financing activities		(41.0	)		(55.1	)		(6.1	)		(2.1	)		4.2			(38.9	)		(33.0	)		(0.9	)		4.0			(14.0	)		(0.4	)
Capital expenditures		39.7			49.2			53.1			29.2			25.4			52.9			43.3			1.2			11.0			7.4			0.2
Other:
Cash dividends declared per share		4.99			4.76			—			N/A			5.80	(6)		3.50			4.00			0.12			—			—			—

(1) Excludes related depreciation and amortization.

(2)	Includes interest income of NT$1,915 million, NT$1,146 million and NT$372 million for the years ended June 30, 1998, 1999 and 2000, respectively, NT$218 million and NT$264 million for the six months ended December 31, 1999 and 2000, respectively, NT$649 million and NT$187 million (US$5 million) for the years ended December 31, 2001 and 2002, respectively, and NT$18 million and NT$18 million (US$1 million) for the three months ended March 31, 2002 and 2003, respectively.
(3)	Includes interest expense of NT$162 million, NT$4 million and NT$169 million for the years ended June 30, 1998, 1999 and 2000, respectively, NT$12 million and NT$103 million for the six months ended December 31, 1999 and 2000, respectively, NT$392 million and NT$171 million (US$5 million) for the years ended December 31, 2001 and 2002, respectively, and NT$15 million and NT$10 million (US$0 million) for the three months ended March 31, 2002 and 2003, respectively.
(4)	Net income per share is the same on both an undiluted and a fully diluted basis.
(5)	Each equivalent ADS represents ten of our common shares.
(6)	For the 18 month period ended December 31, 2000.

24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The following discussion should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus.

Overview

      A number of recent and expected future developments have had and in the future may have a material impact on our results of operations, financial condition and capital expenditures. These developments include:

•  changes in our revenue composition and sources of revenue growth;

•  increased competition in the fixed line, leased line and cellular services markets, including the third generation cellular services market;

•  tariff adjustments;

•  capital expenditures as a result of technological improvements and changes in our business;

•  provisions for pension payments to our employees;

•  taxation; and

•  change in our fiscal year end.

Each of these developments is discussed below.

  Changes in our revenue composition and sources of revenue growth

      Our fixed line revenues are derived primarily from the provision of local, domestic long distance and international long distance telephone services. In addition, we also derive fixed line revenues from providing interconnection services to other carriers. Our revenues from wireless services are derived primarily from the provision of cellular services. Our revenues from Internet and data services are generated principally from HiNet, our Internet service provider, from our asymmetrical digital subscriber line services, and from the provision of dedicated leased lines for our business customers and other operators.

      The table below sets forth the revenues from our principal lines of business as a percentage of revenues for the periods indicated.

									Year ended						Three months
			Year ended			Six months			December 31,						ended March 31,
			June 30,			ended December 31,
			2000			2000			2001			2002			2002			2003
															(unaudited)
Revenues:
	Fixed line			63.9	%		58.5	%		51.6	%		45.4	%		45.5	%		43.2	%
	Wireless			24.5			27.5			31.4			35.7			35.7			36.5
	Internet and data			10.6			12.9			15.6			17.4			17.6			19.3
	Other			1.0			1.1			1.4			1.5			1.2			1.0
		Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

      Over the past three years, the composition of our revenue base has undergone a significant change as a result of our strategy to diversify our revenues and focus on generating increased revenues from higher growth businesses, such as cellular and Internet services.

25

      Cellular and Internet services have been our fastest growing sources of revenue over the last three and a half years. Most of our increased revenues have come from our cellular and Internet access services, with our asymetrical digital subscriber line services accounting for a significant portion of such increase. We launched our asymmetrical digital subscriber line services in August 1999, and we had approximately 1.9 million subscribers as of March 31, 2003. Increasing Internet penetration in Taiwan and higher data traffic have contributed to a significant increase in our revenues from Internet and data services over this period. Revenues from our local telephone and domestic long distance telephone and paging services have declined during this period mainly due to a traffic migration to cellular services. Revenues from our international long distance services have also declined as international long distance tariffs have declined worldwide. We believe that wireless and Internet and data services will continue to generate an increasing percentage of our revenues, although we cannot assure you that the increases in wireless and Internet and data revenues will entirely offset the decrease in fixed line revenues.

Increased competition in the fixed line, leased line and cellular services markets, including the third generation cellular services market

      Three additional operators have been providing fixed line services in Taiwan since June 2001. We believe that these competitors are targeting business subscribers, which generally generate higher revenues per subscriber as compared with residential customers. We are facing significant competition, particularly in the international long distance telephone services market, from these competitors.

      Since August 2001, the Ministry of Transportation and Communications has awarded undersea cable service licenses to four additional operators. In February 2002, the Ministry of Transportation and Communications awarded five concessions to provide third generation cellular services. Two of these new concessions were awarded to new cellular operators.

      The increased competition in the areas of fixed line, leased line and cellular services has led to, and may continue to lead to, further declines in our tariffs, which may result in a decrease in our revenues from these services. At the same time, the increased competition has stimulated consumer demand for telecommunications services, including international telephone usage and international bandwidth demand.

  Tariff adjustments

      We adjust our tariffs and offer promotional packages primarily in response to market conditions within the constraints of our budget requirements. These requirements are determined by the Republic of China government. Our tariffs are also subject to price caps stipulated by the government. However, we adjusted our tariffs for cellular services in April 2000 and in January 2001 in response to resolutions of the Legislative Yuan aimed at making these services more affordable. In addition, we have adjusted our local telephone tariffs to better reflect the cost structure of our local telephone services.

      In 2000, we reduced tariffs for:

•  our cellular services by an average of 17% in April; and

•  our international long distance services by an average of 15% in July.

26

      In January 2001, we:

•  reduced tariffs for our cellular services by an average of 15%;

•  introduced several new tariff plans for local telephone services, increasing the monthly fee of our primary plan for residential customers from NT$45 to NT$70 with an NT$25 deductible on usage fees, while decreasing the monthly fee for business customers from NT$385 to NT$295; and

•  introduced a new peak time usage fee option of NT$1.6 per three minutes.

      In April 2001, we:

•  reduced tariffs for our international long distance calls by an average of 37%, with approximately 50% decreases in tariffs for calls to the People’s Republic of China, the United States and Hong Kong;

•  reduced tariffs for our domestic long distance calls by an average of 18%;

•  reduced monthly rental fees for our asymmetrical digital subscriber line services by an average of 22%; and

•  reduced monthly rental fees for our leased line services by an average of 16% for local services, 25% for domestic long distance services, and 30% for international long distance services.

      In February 2002, we again reduced monthly rental fees for our leased line service by an average of 17% for local services, 36% for domestic long distance services, and 27% for international long distance services.

      In April 2002, we reduced monthly rental fees for our asymmetrical digital subscriber line services by an average of 15%.

      We expect to continue to adjust tariffs and offer a variety of promotional packages from time to time in response to pressures generated by the increasing competition in the telecommunications industry in Taiwan.

Capital expenditures as a result of technological improvements and changes in our business

      In recent years, we have focused on modernizing and upgrading our cellular services network, and developing our asymmetrical digital subscriber line network, which enables transmission of digital information at a high bandwidth over existing telephone lines. In particular, we have enhanced our telecommunication services through:

•  the introduction of a voice over Internet protocol exchange system in our long distance telephone network;

•  the implementation of a network modernization program, including a gradual transfer from our public switched telephone network to a system based on the Internet protocol, to remain at the forefront of new technologies;

•  the development of an intelligent network for fixed line services;

•  the deployment of a high-capacity long-haul dense wavelength division multiplexing system and a nationwide Internet protocol backbone network with 320 gigabits per second giga switching routers for Internet and Internet protocol-virtual private network services; and

27

•  the expansion and upgrade of our cellular services network, including the rollout of general packet-switched radio service.

      As a result, we incurred aggregate capital expenditures of NT$174.7 billion over the period from July 1, 1999 to December 31, 2002.

      We expect our capital expenditures to decrease in future periods. See “— Capital Expenditures” beginning on page 66.

      We expect to focus our future capital expenditures on the following main areas:

•  the rollout of our third generation cellular services network;

•  the expansion of our asymmetrical digital subscriber line services and Internet and related infrastructure to enhance our Internet platform as well as to meet the growing demand for data, multimedia and interactive services;

•  the expansion of our fiber-to-the-building systems to support increased demand for higher bandwidth; and

•  the development of an advanced information technology infrastructure to improve our operations support, management and customer service information systems.

Provisions for pension payments to our employees

      Personnel expenses constitute a significant portion of our operating costs and expenses. For the year ended June 30, 2000, personnel expenses represented 43.4% of our total operating costs and expenses, and pension costs represented 30.1% of our personnel expenses. For the six months ended December 31, 2000, personnel expenses represented 38.5% of our total operating costs and expenses, and pension costs represented 28.3% of our personnel expenses. For the years ended December 31, 2001 and 2002, personnel expenses represented 37.1% and 30.7%, respectively, of our total operating costs and expenses, and pension costs represented 21.6% and 10.5%, respectively, of our personnel expenses. For the three months ended March 31, 2002 and 2003, personnel expenses represented 35.9% and 33.8%, respectively, of our total operating costs and expenses, and pension costs represented 10.0% and 9.8%, respectively, of our personnel expenses. The table below sets forth information regarding personnel expenses, depreciation and amortization and other operating costs and expenses and the percentages of these operating costs and expenses to our total operating costs and expenses for the periods indicated.

																			For the three months
							For the six				For the year ended								ended
			For the year				months				December 31,								March 31,
			ended				ended
			June 30,				December 31,
			2000				2000				2001				2002				2002				2003
																			(Unaudited)
			(in billions of NT$, except for percentages)
Operating costs and expenses:
Personnel expenses
	Pension(1)			16.4	13.1	%		7.4	10.9	%		11.2	8.1	%		4.0	3.2	%		1.0	3.6	%		1.0	3.3	%
	Salaries and bonus			38.1	30.3			18.5	27.6			40.6	29.0			34.0	27.5			8.9	32.3			9.5	30.5
		Total personnel expenses		54.5	43.4			25.9	38.5			51.8	37.1			38.0	30.7			9.9	35.9			10.5	33.8

28

																		For the three months
						For the six				For the year ended								ended
		For the year				months				December 31,								March 31,
		ended				ended
		June 30,				December 31,
		2000				2000				2001				2002				2002				2003
																		(Unaudited)
		(in billions of NT$, except for percentages)
Depreciation and amortization — costs of services			34.7	27.7			18.2	27.0			36.6	26.2			37.9	30.6			9.1	32.9			9.9	31.6
Depreciation and amortization — operating expenses			2.0	1.5			1.0	1.5			2.3	1.6			2.4	2.0			0.6	2.2			0.6	2.1
Other			34.3	27.4			22.2	33.0			49.1	35.1			45.4	36.7			8.0	29.0			10.1	32.5
	Total operating costs and expenses		125.5	100.0	%		67.3	100.0	%		139.8	100.0	%		123.7	100.0	%		27.6	100.0	%		31.1	100.0	%

(1)  Does not include NT$102 million of pension costs associated with employees engaged in construction projects that were capitalized and not treated as personnel expenses for the year ended June 30, 2000, NT$50 million of pension costs associated with employees engaged in construction projects that were capitalized and not treated as personnel expenses for the six months ended December 31, 2000, NT$97 million and NT$106 million of pension costs associated with employees engaged in construction projects that were capitalized and not treated as personnel expenses for the years ended December 31, 2001 and 2002, respectively, and NT$21 million and NT$10 million of pension costs associated with employees engaged in construction projects that were capitalized and not treated as personnel expenses for the three months ended March 31, 2002 and 2003.

     The following table sets forth our personnel expenses (divided into pension and non-pension portions) allocated by categories of operating costs and expenses:

																	For the three months
								For the six			For the year ended						ended
					For the year			months			December 31,						March 31,
					ended			ended
					June 30,			December 31,
					2000			2000			2001			2002			2002			2003
																	(Unaudited)
					(in billions of NT$, except for percentages)
Personnel expenses
	Cost of Services
		Pension				11.1	20.5%		5.0	19.2%		7.4	14.3%		2.5	6.5%		0.6	6.1%		0.6	5.9%
		Non-pension				26.2	48.0		12.6	48.8		26.9	52.0		22.0	57.8		5.7	57.7		6.0	57.0
			Total			37.3	68.5		17.6	68.0		34.3	66.3		24.5	64.3		6.3	63.8		6.6	62.9
	Sales and Marketing
		Pension				3.9	7.1		1.8	6.7		2.6	5.0		1.1	2.8		0.3	2.7		0.3	2.8
		Non-pension				8.0	14.7		4.0	15.5		9.3	18.0		8.1	21.4		2.1	21.2		2.4	22.4
			Total			11.9	21.8		5.8	22.2		11.9	23.0		9.2	24.2		2.4	23.9		2.7	25.2
	General and Administration
		Pension				0.9	1.6		0.4	1.5		0.7	1.3		0.2	0.6		0.1	0.6		0.1	0.6
		Non-pension				2.1	4.0		1.0	4.0		2.5	4.7		2.1	5.5		0.6	6.6		0.6	6.0
			Total			3.0	5.6		1.4	5.5		3.2	6.0		2.3	6.1		0.7	7.2		0.7	6.6
	Research and Development
		Pension				0.5	0.9		0.2	0.9		0.5	1.0		0.2	0.6		—	0.6		—	0.5
		Non-pension				1.8	3.2		0.9	3.4		1.9	3.7		1.8	4.8		0.5	4.5		0.5	4.8
			Total			2.3	4.1		1.1	4.3		2.4	4.7		2.0	5.4		0.5	5.1		0.5	5.3
				Total personnel expenses		54.5	100.0%		25.9	100.0%		51.8	100.0%		38.0	100.0%		9.9	100.0%		10.5	100.0%

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      In connection with our planned privatization, we are obligated to fully fund our existing defined benefit pension plans prior to the time of our privatization. After completion of our privatization, our continuing employees will be deemed to have commenced employment as of the date our privatization is completed for seniority purposes under our pension plans in effect after privatization.

      Pension costs decreased as the termination benefit was either fully paid or accrued at the end of 2001, and all prior service costs were fully amortized by the end of 2001. We expect our ongoing annual pension costs for the fiscal years immediately following the completion of our privatization to be approximately NT$6 billion.

  Taxation

      The current corporate income tax rate in the Republic of China is 25%. We have benefited from tax incentives generally available to technology companies in the Republic of China, including tax credits of up to 30% (25% prior to February 2002) of the amount of some of our research and development, automation and employee training expenditures. Starting in 2001, we qualify for tax benefits at the rate of 5% to 20% for the amount of our investment in qualified equipment and technology. In addition, we qualify for tax benefits regarding our investment in the areas affected by the September 21, 1999 earthquake at the rate of 20% of our investments. As a result, our effective tax rate was 23% for the year ended June 30, 2000, 23.8% for the six months ended December 31, 2000, 20.3% for the year ended December 31, 2001, 22.6% for the year ended December 31, 2002 and 20.8% and 21.1% for the three months ended March 31, 2002 and 2003, respectively.

      In 1997, the Income Tax Law of the Republic of China was amended to integrate corporate income tax and shareholder dividend tax to eliminate the double taxation effect for resident shareholders of Taiwan companies. Under the amendment, all retained earnings generated from January 1, 1998 and not distributed to shareholders as dividends in the following year are assessed with a 10% retained earnings tax. See “Taxation — Republic of China Taxation — Dividends” beginning on page 159. Historically, this has not had an impact on our financial results of operations, because the major portion of our earnings was distributed to the government by way of dividends. If we decide to retain a substantial portion of our earnings in the future, we may be assessed with retained earnings tax and our effective tax rate may exceed the corporate income tax rate.

  Change in our fiscal year end

      As a state owned enterprise, we were required by the government to change our financial reporting year, starting in 2000, from a fiscal year ending on June 30 to a calendar year. We prepared financial statements under US GAAP for the year ended June 30, 2000, and we transitioned to a calendar year for US GAAP reporting purposes with effect from January 1, 2001. In the interim, we prepared audited US GAAP financial statements for the six month period ending December 31, 2000. For reporting purposes in the Republic of China, we have prepared and disseminated audited financial statements for the 18 month period commencing on July 1, 1999 and ending on December 31, 2000.

Critical Accounting Policies

      Our financial statements are prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. We continually evaluate these estimates and judgments,

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including those related to revenue recognition, allowance for doubtful accounts, estimated useful lives of long-lived assets, investments in unconsolidated companies, pension benefits and accounting for income taxes. We base these estimates and judgments on our historical experience and other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

  Revenue recognition

      We recognize revenues for our services in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101. We record service revenues over the periods they are earned. The costs of providing services are recognized as incurred. Handset subsidy costs are paid to a vendor that sells a handset to a customer who subscribes to the service, as an inducement to enter into a service contract, and are recognized as a cost of service when incurred. Usage revenues from fixed line services, cellular services, Internet and data services, and interconnection and call transfer fees from other telecommunications companies and carriers are billed in arrears and are recognized based upon minutes of traffic processed when the services are provided in accordance with contract terms.

      One-time subscriber connection fees are deferred and recognized over the average expected customer service periods, which we evaluate on a continual basis. For example, the average expected customer service period for fixed line services revenues has declined over time from 15 years at December 31, 2000 to 13 years at December 31, 2002, while the average expected customer service periods for the other service lines have remained relatively the same over the same period. If our estimates of these customer service periods become longer, the amortization of our deferred income could be adversely affected, which is also dependent on the amount of one-time connection fees received from subscribers.

  Allowance for doubtful accounts

      We maintain allowance for doubtful accounts for estimated losses that result from the inability of our customers to make required payments. We base our allowances on the likelihood of recoverability of account receivables by operating segment based on past experience and current collection trends that are expected to continue. Our evaluation also includes the length of time the receivables are past due, geographic concentrations and the general business environment. If changes in these factors occur, or the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and our future results of operations could be adversely affected.

  Estimated useful lives of long-lived assets

      A significant portion of our total assets consists of long-lived assets and are primarily property, plant and equipment and definite-lived intangibles. We estimate the useful lives of property, plant and equipment and other long-lived assets with finite lives in order to determine the amount of depreciation and amortization expense to be recorded during the reported period. The useful lives are estimated at the time assets are acquired and are based on historical experience with similar assets as well as the anticipated technological evolution or other environmental changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation and amortization in a future period. Alternatively, technological obsolescence could result in a write-down in the value of the assets to reflect impairment. We review these types of assets for impairment annually, or when events or circumstances indicate that the

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carrying amount may not be recoverable over the remaining lives of the assets. In assessing impairments, we use estimated cash flows that take into account management’s estimates of future operations.

      If at January 1, 2002 we would have determined that the remaining useful lives for our property, plant and equipment were shorter or longer by one year than what we used in the preparation of our financial statements, our recorded depreciation expense would have increased by approximately NT$10 billion or decreased by approximately NT$7 billion, respectively, for the year ended December 31, 2002.

  Investments in unconsolidated companies

      We hold investments in other companies that we account for under the equity method or cost method of accounting, depending on our ability to exert significant influence over the entity in which we are investing. The amounts for our equity-method investments generally represent our cost of the initial investment adjusted for our share of the investee’s income or loss and any dividends received. Any excess in our acquisition cost over our share of the investee’s net assets is recorded as goodwill and is generally amortized by the straight line method over five years. All of the equity-method goodwill had been fully amortized at June 30, 1999. The amounts for our cost-method investments where the securities are not publicly traded generally represent our cost of the initial investment less any adjustments we make when we determine that an investment’s net realizable value is less than its carrying cost.

      The process of assessing whether a particular cost-method investment’s net realizable value is less than its carrying cost requires a significant amount of judgment. We periodically evaluate these long-term investments based on quoted market prices, if available, the financial condition of the investee company, economic conditions in the industry and our intent and ability to hold the investment for a long period of time. If quoted market prices are not available, we estimate the fair value using the net asset values as well as the financial condition of the investee company. This information may be based on information that we request from the investee companies and may not be subject to the same disclosure and audit requirements as required of U.S. companies, and as such, the reliability and accuracy of the information may vary. If we deem the fair value of an investment is less than the book value based on the above factors, and the decline in value is deemed to be other than temporary, we record the difference as impairment in the period of occurrence.

      Estimating the net realizable value of investments in privately held companies can be inherently subjective and may contribute to significant volatility in our reported results of operations. For example, if the current weak investing environment continues throughout 2003, we may incur an impairment in our equity or cost method investments.

  Pension benefit

      The amounts recognized in our financial statements related to pension benefits are determined on an actuarial basis that utilizes several different assumptions in the calculation of such amounts. Significant assumptions used in determining our pension benefits are the discount rate, the expected long-term rate of return on plan assets, the rate of increase in compensation levels and the average remaining years of service for employees. In addition, because we are required to fully fund our pension plans on or prior to the date of our privatization to enable us to meet the requirements of making full benefit payments to our existing employees, we have made an assumption of the privatization date in determining the amount of the pension benefit.

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      We use long-term historical actual return information and estimate future long-term investment returns by reference to external sources to develop the expected long-term return on plan assets. The discount rate is assumed based on the rates available on high-quality fixed-income debt instruments with the same period to maturity as the estimated period to maturity of the pension benefit. We assume the rate of increase in compensation levels and average remaining years of service based on historical data. We assume the privatization date is December 31, 2003 based on the current plan as stated by the Ministry of Transportation and Communications. Any changes in one or more of these assumptions could impact our pension benefit.

      A decrease in the discount rate or in the expected return on assets would increase the reported obligation. For example, if the discount rate in 2002 used in determining this obligation were 0.25% lower, it would generate an NT$1,369 million increase in the obligation reported on the balance sheet and an NT$17 million increase in the benefit costs. Similarly, if the expected return on assets assumption were 0.25% lower, it would generate an NT$214 million increase in the obligation reported on the balance sheet, and a similar increase to benefit costs. A reasonable change in the estimate of health care cost assumptions or a delay of the privatization date by one year would not materially affect our pension obligation or related benefit costs.

  Accounting for income taxes

      Deferred income taxes are provided for the effect of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. We measure deferred tax assets and liabilities using statutory tax rates that, if changed, would result in either an increase or a decrease in the provision for income taxes in the period of change. A one-percentage point increase in the statutory income tax rate as of December 31, 2002 would have decreased our net income by approximately NT$569.3 million.

      We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, we cannot assure you that we would not need to increase the valuation allowance to cover additional deferred tax assets that may not be realizable. Any increase in the valuation allowance could have a material adverse effect on our income tax provision and net income in the period in which such determination is made.

      We had a valuation allowance of NT$2,784 million on our deferred tax asset balance as of December 31, 2002, which was primarily for the tax benefit from our provision for doubtful accounts and the timing differences between US GAAP reporting and the taxable base for the 10% undistributed earnings tax. We do not have a valuation allowance on other components of the deferred tax asset, as we believe these benefits will be fully realizable based on our projection of future operating income. If we experience a significant decrease in our future operating income, the realizability of our deferred tax assets could be negatively impacted, and thus an increase in the valuation allowance might be required.

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Our Financial Reporting Obligations

      Our audited financial statements included in this prospectus are prepared under US GAAP. As a state owned enterprise, we prepare certain unaudited financial data on a monthly and quarterly basis and audited financial statements on a semiannual and annual basis in accordance with our internal accounting principles, which take into account ROC GAAP and relevant laws and regulations and government guidelines applicable to state owned enterprises. These internal accounting principles, which we refer to as Chunghwa Telecom Internal Accounting Principles, have been approved by the government.

      We are also required to prepare on an annual basis audited financial statements subject to the review and adjustment of the Ministry of Audit in accordance with the Audit Law of the Republic of China and other relevant laws and regulations. As a result, we may publish up to three separate audited annual financial statements, including financial statements prepared under US GAAP, the Chunghwa Telecom Internal Accounting Principles and the accounting standards used by the government, for so long as the government, together with any entity more than 50% owned by the government, owns at least 50% of our common shares.

      Until we are privatized, we plan to make available the following unaudited financial statements prepared in accordance with US GAAP at the same time that we make available unaudited financial statements for the same periods prepared in accordance with Chunghwa Telecom Internal Accounting Principles as required by Republic of China law:

• financial statements for the three months ended March 31 of each fiscal year;

• financial statements for the three months and six months ended June 30 of each fiscal year; and

• financial statements for the three months and nine months ended September 30 of each fiscal year.

      In addition, until we are privatized, we plan to make available audited annual financial statements prepared in accordance with US GAAP at the same time that we make available our annual financial statements prepared in accordance with Chunghwa Telecom Internal Accounting Principles as required by Republic of China law.

      The Chunghwa Telecom Internal Accounting Principles and the accounting standards used by the government differ in significant respects from each other and from US GAAP. In addition, the government may require that adjustments be made in accordance with the Audit Law of the Republic of China to our financial statements prepared under the Chunghwa Telecom Internal Accounting Principles. However, these adjustments have not had any material impact on our financial statements presented in this prospectus. The financial statements presented in this prospectus have been prepared in accordance with US GAAP and were not subject to adjustment under the government review and audit process. You should not rely on our audited financial statements prepared under the Chunghwa Telecom Internal Accounting Principles or our financial statements audited by the government for purposes of comparison with our financial statements prepared under US GAAP.

      In addition, dividends paid to our shareholders have historically been determined based on our net income determined in accordance with the Chunghwa Telecom Internal Accounting Principles, which take into account ROC GAAP and relevant laws and regulations and government guidelines applicable to state owned enterprises. Dividends to be paid subsequent to our privatization will be determined in accordance with ROC GAAP.

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Results of Operations

      Pursuant to a revision in the Republic of China Budget Law on October 29, 1998, we changed our financial reporting year from a fiscal year that begins on July 1 and ends on June 30 to a calendar year. As a result, for reporting purposes in the Republic of China, our final fiscal year ended June 30 was the fiscal year ended June 30, 1999, and the 18-month period ended December 31, 2000 is considered a transition period. However, in the results of operations below, we have reported the year ended June 30, 2000 as a comparative fiscal year, and the six months ended December 31, 2000 as a transition period.

      The following table sets forth our revenues, operating costs and expenses, income from operations and other financial data for the periods indicated.

						For the six				For the year				For the three
				For the year		months ended				ended				months ended
				ended		December 31,				December 31,				March 31,
				June 30,
				2000		1999		2000		2001		2002		2002		2003
				(unaudited)										(unaudited)
				(in NT$ billions)
Revenues:
	Fixed line
		Local			61.9		30.3		30.4		56.5		51.8		12.7		12.0
		Domestic long distance			25.7		13.4		12.3		18.0		14.0		3.5		3.3
		International long distance			30.7		15.8		12.8		20.6		15.7		3.5		3.8
			Total fixed line		118.3		59.5		55.5		95.1		81.5		19.7		19.1
	Wireless
		Cellular			42.2		20.4		25.1		56.7		62.9		15.1		16.0
		Paging			3.1		1.7		1.0		1.3		1.1		0.3		0.2
			Total wireless		45.3		22.1		26.1		58.0		64.0		15.4		16.2
	Internet and data:
		Internet			7.7		3.6		5.9		15.2		20.8		4.8		6.1
		Data			11.8		5.7		6.4		13.6		10.4		2.8		2.4
			Total Internet and data		19.5		9.3		12.3		28.8		31.2		7.6		8.5
	Other				1.9		0.8		1.1		2.5		2.7		0.5		0.4
			Total revenues		185.0		91.7		95.0		184.4		179.4		43.2		44.2
Operating costs and expenses:
	Costs of services(1)				64.8		30.5		35.6		72.7		58.1		13.5		14.2
	Marketing(1)				18.0		8.4		9.6		21.9		20.2		3.1		5.1
	General and administrative(1)				3.3		1.5		1.6		3.5		2.7		0.8		0.7
	Research and development(1)				2.7		1.3		1.3		2.8		2.4		0.5		0.6
	Depreciation and amortization — costs of services				34.7		17.2		18.2		36.6		37.9		9.1		9.9
	Depreciation and amortization — operating expenses				2.0		1.0		1.0		2.3		2.4		0.6		0.6
			Total operating costs and expenses		125.5		59.9		67.3		139.8		123.7		27.6		31.1
Income from operations					59.5		31.8		27.7		44.6		55.7		15.6		13.1
Other income					1.8		1.1		1.2		3.7		2.5		0.7		0.6
Other expenses					0.8		0.3		0.5		1.4		1.3		0.3		0.2
Income before income tax					60.5		32.6		28.4		46.9		56.9		16.0		13.5
Income tax					13.9		7.4		6.8		9.5		12.8		3.3		2.8
Net income					46.6		25.2		21.6		37.4		44.1		12.7		10.7

(1)  Excludes related depreciation and amortization.

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      The following table sets forth our revenues, operating costs and expenses, income from operations and other financial data as a percentage of our total revenues for the periods indicated.

							For the six						For the year						For the three
				For the year			months ended						ended						months ended
				ended			December 31,						December 31,						March 31,
				June 30,
				2000			1999			2000			2001			2002			2002			2003
				(unaudited)															(unaudited)
				(as percentages of total revenues)
Revenues:
	Fixed line
		Local			33.4	%		33.0	%		32.0	%		30.6	%		28.9	%		29.3	%		27.1	%
		Domestic long distance			13.9			14.6			13.0			9.8			7.8			8.1			7.4
		International long distance			16.6			17.2			13.5			11.2			8.7			8.1			8.7
			Total fixed line		63.9			64.8			58.5			51.6			45.4			45.5			43.2
	Wireless
		Cellular			22.8			22.3			26.4			30.7			35.1			35.0			36.1
		Paging			1.7			1.8			1.1			0.7			0.6			0.7			0.4
			Total wireless		24.5			24.1			27.5			31.4			35.7			35.7			36.5
	Internet and data:
		Internet			4.2			3.9			6.2			8.2			11.6			11.2			13.9
		Data			6.4			6.3			6.7			7.4			5.8			6.4			5.4
			Total Internet and data		10.6			10.2			12.9			15.6			17.4			17.6			19.3
	Other				1.0			0.9			1.1			1.4			1.5			1.2			1.0
			Total revenues		100.0			100.0			100.0			100.0			100.0			100.0			100.0
Operating costs and expenses:
	Costs of services(1)				35.0			33.3			37.4			39.4			32.4			31.3			32.1
	Marketing(1)				9.7			9.2			10.1			11.9			11.2			7.2			11.4
	General and administrative(1)				1.8			1.6			1.7			1.9			1.5			1.8			1.7
	Research and development(1)				1.5			1.4			1.4			1.5			1.4			1.3			1.4
	Depreciation and amortization
		— costs of services			18.7			18.7			19.1			19.9			21.1			21.0			22.3
	Depreciation and amortization
		— operating expenses			1.1			1.1			1.1			1.2			1.4			1.4			1.5
			Total operating costs and expenses		67.8			65.3			70.8			75.8			69.0			64.0			70.4
Income from operations					32.2			34.7			29.2			24.2			31.0			36.0			29.6
Other income					1.0			1.1			1.3			2.0			1.4			1.8			1.4
Other expenses					0.5			0.3			0.6			0.8			0.7			0.7			0.4
Income before income tax					32.7			35.5			29.9			25.4			31.7			37.1			30.6
Income tax					7.5			8.0			7.1			5.1			7.1			7.7			6.5
Net income					25.2	%		27.5	%		22.8	%		20.3	%		24.6	%		29.4	%		24.1	%

(1)  Excludes related depreciation and amortization.

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Three months ended March 31, 2003 (unaudited) compared with three months ended March 31, 2002 (unaudited)

Revenues

      Our revenues increased by 2.4% from NT$43.2 billion in the three months ended March 31, 2002 to NT$44.2 billion (US$1.3 billion) in the three months ended March 31, 2003. This increase was primarily due to increases in revenues from our cellular services and our Internet and data services, which were partially offset by decreases in revenues from our fixed line services.

Fixed Line Services

      Fixed line revenues comprised 45.5% and 43.2% of our revenues in the three months ended March 31, 2002 and 2003, respectively.

      Local telephone services. Our local telephone revenues decreased by 5.6% from NT$12.7 billion in the three months ended March 31, 2002 to NT$12.0 billion (US$0.3 billion) in the same period in 2003. This decrease was primarily due to a 17.5% decline in traffic volume from 8.9 billion minutes in the three months ended March 31, 2002 to 7.4 billion minutes in the same period in 2003. This decline in traffic volume was primarily due to a migration of non-HiNet Internet subscribers from dial-up to broadband Internet access, the continued traffic migration from fixed line services to cellular services, and an economic slowdown in Taiwan. We expect this trend to continue as broadband and cellular services become more widely adopted in Taiwan. This decline in traffic volume was partially offset by a 6.7% increase in average local usage fees, reflecting a decrease in users of our discounted Internet tariff package. Our local interconnection revenues increased by NT$0.1 billion between these two periods because of an increase in interconnection minutes with other fixed line operators.

      Domestic long distance telephone services. Our domestic long distance telephone revenues decreased by 6.6% from NT$3.5 billion in the three months ended March 31, 2002 to NT$3.3 billion (US$94.4 million) in the same period in 2003. This decrease was mainly due to a decrease in traffic volume from 1.7 billion minutes in the three months ended March 31, 2002 to 1.5 billion minutes in the same period in 2003. The decrease in traffic volume was primarily due to the continued traffic migration from fixed line services to cellular services and increased competition from other fixed line operators. We expect this trend to continue as broadband and cellular services become more widely adopted in Taiwan.

      International long distance telephone services. Our international long distance telephone revenues increased by 10.0% from NT$3.5 billion in the three months ended March 31, 2002 to NT$3.8 billion (US$110.7 million) in the same period in 2003. This increase was primarily due to an increase in outgoing traffic volume due to our increased efforts to sell wholesale minutes. This increase in traffic volume was partially offset by a 23.6% decline in average usage fees. Our international settlement revenues decreased by 10.6% from NT$1.0 billion in the three months ended March 31, 2002 to NT$0.9 billion (US$25.3 million) in the same period in 2003. This decrease was primarily due to the continued decline in international settlement rates.

Wireless Services

      Wireless revenues comprised 35.7% and 36.5% of our revenues in the three months ended March 31, 2002 and 2003, respectively. Our cellular services grew as a percentage of our revenues from 35.0% in the three months ended March 31, 2002 to 36.1% in the same

37

period in 2003. Our paging services decreased as a percentage of our revenues from 0.7% in the three months ended March 31, 2002 to 0.4% in the same period in 2003.

      Cellular services. Our cellular services revenues increased by 5.6% from NT$15.1 billion in the three months ended March 31, 2002 to NT$16.0 billion (US$0.5 billion) in the same period in 2003. This increase was primarily due to a 16.6% increase in the number of cellular subscribers from 6.5 million as of March 31, 2002 to 7.6 million as of March 31, 2003, as well as an increase in outgoing traffic volume from 1.7 billion minutes in the three months ended March 31, 2002 to 1.8 billion minutes in the same period in 2003. The increases in the number of subscribers and traffic volume were driven largely by increasing penetration of cellular services, the traffic migration from fixed line services to cellular services as cellular services become more widely adopted in Taiwan, and our continued offering of handset subsidies. The effects of these increases were partially offset by a decrease in minutes of usage per user.

      Paging services. Our paging revenues decreased by 35.1% from NT$0.3 billion in the three months ended March 31, 2002 to NT$0.2 billion (US$5.3 million) in the same period in 2003. This decrease was primarily due to a 38.5% decrease in the number of paging subscribers resulting from the continued customer migration to cellular services, as cellular services become more widely adopted in Taiwan.

Internet and Data Services

      Internet and data revenues comprised 17.6% and 19.3% of our revenues in the three months ended March 31, 2002 and 2003, respectively. Our Internet and data revenues increased by 12.8% from NT$7.6 billion in the three months ended March 31, 2002 to NT$8.5 billion (US$246.3 million) in the same period in 2003. This increase was principally due to increases in revenues attributable to our Internet services, which was partially offset by decreases in our revenues from data services.

      Internet services. Our revenues attributable to Internet services increased by 27.4% from NT$4.8 billion in the three months ended March 31, 2002 to NT$6.1 billion (US$177.3 million) in the same period in 2003. This increase was largely due to an increase in the number of our asymmetrical digital subscriber line subscribers from 1.0 million as of March 31, 2002 to 1.9 million as of March 31, 2003. This increase was also due to a 18.0% increase in the number of our HiNet subscribers from 2.9 million as of March 31, 2002 to 3.4 million as of March 31, 2003. Calls to HiNet are recorded as part of our Internet and data services and are not included in our local minutes or revenues. We include usage fees from fixed line telephone calls to access our HiNet service in our Internet and data revenue. Usage fees from fixed line telephone calls to access Internet service providers other than HiNet are recorded as fixed line revenue.

      Data services. Revenues from our data services decreased by 12.9% from NT$2.8 billion in the three months ended March 31, 2002 to NT$2.4 billion (US$69.0 million) in the same period in 2003. A substantial portion of our data revenues were derived from our leased line services. Despite increased demand for higher speed leased lines, our leased line tariffs have declined significantly due to competition from other fixed line operators and international leased line service providers and a migration of domestic leased line users to asymmetrical digital subscriber line services. The effects of these tariff decreases were partially offset by increases in our bandwidth.

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Other

      Other revenues comprised 1.2% and 1.0% of our revenues in the three months ended March 31, 2002 and 2003, respectively.

      Our other revenues decreased by 19.5% from NT$0.5 billion in the three months ended March 31, 2002 to NT$0.4 billion (US$12.2 million) in the same period in 2003. This decrease in other revenues was principally due to a decline in revenues from sales of telephone-directory advertising.

Operating Costs and Expenses

      Our operating costs and expenses increased by 12.7% from NT$27.6 billion in the three months ended March 31, 2002 to NT$31.1 billion (US$896.3 million) in the same period in 2003. This increase was primarily due to increases in our marketing expenses, depreciation and amortization expenses and costs of services. As a percentage of revenues, operating costs and expenses increased from 64.0% in the three months ended March 31, 2002 to 70.4% in the same period in 2003.

Costs of Services

      Costs of services include personnel expenses, international settlement costs, handset subsidies, spectrum usage and license fees, costs of materials and maintenance and interconnection fees among cellular operators.

      Our costs of services increased by 5.5% from NT$13.5 billion in the three months ended March 31, 2002 to NT$14.2 billion (US$409.2 million) in the same period in 2003. This increase was principally due to (1) an NT$0.3 billion increase in interconnection fees and (2) compensation expenses related to an NT$0.2 billion discount offered to our employees who participated in our priority share subscription program in the same period in 2003, while no such program was offered in the three months ended March 31, 2002. Our cellular handset subsidies increased by 6.3% from NT$934.3 million in the three months ended March 31, 2002 to NT$993.7 million in the same period in 2003.

Marketing

      Our marketing expenses, which include personnel expenses, provisions for bad debt and expenses relating to advertising and other marketing-related activities, increased by 61.7% from NT$3.1 billion in the three months ended March 31, 2002 to NT$5.1 billion (US$145.6 million) in the same period in 2003. Our marketing expenses, excluding personnel expenses, increased by 218.9% from NT$0.8 billion in the three months ended March 31, 2002 to NT$2.4 billion (US$69.5 million) in the same period in 2003. The increase in our marketing expenses was partially due to an NT$1.2 billion increase in provisions for bad debt. Based on the delinquency level for the three months ended March 31, 2002, we made NT$1 million provision for bad debt for that period. In the second half of 2002, we observed increased delinquencies as a result of the removal of our deposit requirement for new subscribers. As a result, we made a large NT$4.6 billion provision for bad debt during the second half of 2002. In addition, we have adopted more stringent credit policies for new subscribers, and increased our efforts in collecting bad debt. As a result, we believe that the amount of provisions for bad debt in 2003 will be lower compared to 2002. In addition, the increase in marketing expenses was due to: (1) an NT$0.3 billion increase in advertising expenses in the three months ended March 31, 2003 compared to the three months ended March 31, 2002, (2) compensation expenses related to a discount of NT$0.1 billion offered to our employees who participated in our priority share subscription program in the three

39

months ended March 31, 2003, while no such program was offered in the three months ended March 31, 2002 and (3) an NT$0.2 billion increase in personnel expenses, excluding pension costs, due to an increase in the number of our marketing employees.

General and Administrative

      Our general and administrative expenses decreased by 4.6% from NT$0.8 billion in the three months ended March 31, 2002 to NT$0.7 billion (US$21.5 million) in the three months ended March 31, 2003. This decrease was principally due to an NT$66 million decrease in salaries and bonuses.

Research and Development

      Our research and development expenses increased by 10.2% from NT$0.5 billion in the three months ended March 31, 2002 to NT$0.6 billion (US$17.4 million) in the three months ended March 31, 2003. This increase was principally due to an NT$32 million increase in the discount offered to our employees who participated in our priority share subscription program in the three months ended March 31, 2003, while no such program was offered in the same period in 2002.

Depreciation and Amortization

      Our depreciation and amortization expenses increased by 8.6% from NT$9.7 billion in the three months ended March 31, 2002 to NT$10.5 billion (US$302.6 million) in the same period in 2003. This increase was due to the expansion of our global system for mobile communications network.

40

     Operating Costs and Expenses by Business Segment

					Domestic		International
					Long		Long				Internet
			Local		Distance		Distance		Wireless(1)		and Data		Other		Total
			(in billions of NT$)
			(unaudited)
As of and for the three months ended March 31, 2003
Operating costs and expenses				8.0		0.4		2.0		5.3		3.6		0.4		19.7
	Unallocated corporate expenses															0.9
		Total operating costs and expenses														20.6
Depreciation and amortization				5.8		0.4		0.1		1.5		2.4		0.3		10.5
	Unallocated corporate expenses															—
		Total depreciation and amortization														10.5
As of and for the three months ended March 31, 2002
Operating costs and expenses				7.4		0.5		1.9		3.8		3.3		0.2		17.1
	Unallocated corporate expenses															0.8
		Total operating costs and expenses														17.9
Depreciation and amortization				5.8		0.4		0.1		1.1		2.1		0.2		9.7
	Unallocated corporate expenses															—
		Total depreciation and amortization														9.7

(1) Includes cellular and paging services.

          Local telephone services.

      Our local telephone operating expenses increased by 6.8% from NT$7.4 billion in the three months ended March 31, 2002 to NT$8.0 billion (US$0.2 billion) in the same period in 2003. This increase was primarily due to increases in interconnection fees, personnel costs and provisions for bad debt. Our depreciation and amortization expenses relating to local telephone services remained relatively constant at NT$5.8 billion for the three months ended March 31, 2002 and 2003.

          Domestic long distance telephone services.

      Our domestic long distance telephone operating expenses decreased by 8.7% from NT$0.5 billion in the three months ended March 31, 2002 to NT$0.4 billion (US$13.7 million) in the same period in 2003. This decrease was primarily due to the decrease in personnel costs resulting from a decline in the number of employees. Our depreciation and amortization expenses relating to domestic long distance telephone services were NT$0.4 billion for the three months ended March 31, 2002 and 2003, respectively.

          International long distance telephone services.

      Our international long distance telephone operating expenses increased by 7.9% from NT$1.9 billion in the same period in 2002 to NT$2.0 billion (US$58.3 million) in the three months ended March 31, 2003. This increase was primarily due to increases in international settlement payments attributable to increased traffic volume. Our depreciation and amortiza-

41

tion expenses relating to international long distance telephone services were NT$0.1 billion in the three months ended March 31, 2002 and 2003.

          Wireless Services.

      Our wireless operating expenses increased by 40.0% from NT$3.8 billion in the three months ended March 31, 2002 to NT$5.3 billion (US$0.2 billion) in the same period in 2003. This increase was primarily due to (1) an NT$1.1 billion increase in provisions for bad debt, (2) an increase in marketing expenses, (3) an increase in our personnel expenses attributable to the increased number of employees and (4) an increase in interconnection fees. Our depreciation and amortization expenses relating to wireless services increased by 26.4% from NT$1.1 billion in the three months ended March 31, 2002 to NT$1.5 billion (US$42.0 million) in the same period in 2003. This increase was primarily due to the increase in depreciation costs attributable to the expansion of our global system for mobile communications network.

          Internet and Data Services.

      Our Internet and data operating expenses increased by 8.7% from NT$3.3 billion in the three months ended March 31, 2002 to NT$3.6 billion (US$102.3 million) in the same period in 2003. This increase was primarily due to increases in marketing expenses and personnel costs. Our depreciation and amortization expenses relating to Internet and data services increased by 19.0% from NT$2.1 billion in the three months ended March 31, 2002 to NT$2.4 billion (US$70.6 million) in the same period in 2003. This increase was primarily due to the increase in equipment investments for asymmetrical digital subscriber line services.

Operating Income and Operating Margin

      As result of the factors described above, our operating income decreased by 16.0% from NT$15.6 billion in the three months ended March 31, 2002 to NT$13.1 billion (US$376.3 million) in the same period in 2003. Our operating margin decreased from 36.0% in the three months ended March 31, 2002 to 29.6% in the same period in 2003.

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      The following table sets forth certain information regarding our operating income by business segment for the periods indicated.

						Domestic		International
						Long		Long				Internet
			Local			Distance		Distance		Wireless(1)		and Data			Other			Total
			(in billions of NT$)
			(unaudited)
As of and for the three months ended March 31, 2003
Income from operations				1.5			1.8		1.0		6.4		3.6			(0.3	)		14.0
	Elimination of intersegment income			(3.3	)		0.7		0.7		3.0		(1.1	)		—			(—	)
				(1.8	)		2.5		1.7		9.4		2.5			(0.3	)		14.0
	Unallocated corporate expenses																		(0.9	)
		Total income from operations																	13.1
As of and for the three months ended March 31, 2002
Income from operations				3.2			1.7		0.9		7.3		3.2			0.1			16.4
	Elimination of intersegment income			(3.7	)		0.9		0.6		3.2		(1.0	)		—			—
				(0.5	)		2.6		1.5		10.5		2.2			0.1			16.4
	Unallocated corporate expenses																		(0.8	)
		Total income from operations																	15.6

(1) Includes cellular and paging services.

      As result of the factors described above, in the three months ended March 31, 2002 compared to the same period in 2003: (1) our local telephone service operating losses increased by 221.5% from NT$0.5 billion to NT$1.8 billion, (2) our domestic long distance telephone service operating income decreased by 8.4% from NT$2.6 billion to NT$2.5 billion, (3) our international long distance telephone service operating income increased by 15.6% from NT$1.5 billion to NT$1.7 billion, (4) our wireless service operating income decreased by 10.3% from NT$10.5 billion to NT$9.4 billion and (5) our Internet and data service operating income increased by 12.9% from NT$2.2 billion to NT$2.5 billion.

      Our management evaluates our business segments taking into account internal and inter-segment costs and revenues. All of our business lines, particularly local telephone, domestic long distance telephone and international long distance telephone services, operate as an integrated business unit. Therefore, we have shown the inter-segment income in the above table.

Other Income and Other Expenses

      Our other income decreased by 19.8% from NT$0.7 billion in the three months ended March 31, 2002 to NT$0.6 billion (US$17.4 million) in the same period in 2003. The decrease in our other income was primarily due to an NT$0.1 billion decrease in penalties paid by cellular and asymmetrical digital subscriber line subscribers for early termination in the three months ended March 31, 2003 compared to the same period in 2002.

      Our other expenses decreased by 50.2% from NT$0.3 billion in the three months ended March 31, 2002 to NT$0.2 billion (US$4.5 million) in the same period in 2003. This decrease was largely due to an increase in foreign exchange losses by NT$0.2 billion in the three months ended March 31, 2003 compared to the same period in 2002.

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Income Tax

      Our income tax was NT$3.3 billion in the three months ended March 31, 2002, compared to NT$2.8 billion (US$82.2 million) in the same period in 2003.

      Our effective tax rate was 20.8% in the three months ended March 31, 2002 and 21.1% in the same period in 2003.

Net Income

      As a result of the factors described above, our net income decreased by 15.9% from NT$12.7 billion in the three months ended March 31, 2002 to NT$10.7 billion (US$307.0 million) in the same period in 2003.

      Our net margin was 29.4% in the three months ended March 31, 2002 and 24.1% in the same period in 2003.

Other Comprehensive Income

      We did not record any other comprehensive income in the three months ended March 31, 2002 and 2003.

Year ended December 31, 2002 compared with year ended December 31, 2001

Revenues

      Our revenues decreased by 2.7% from NT$184.4 billion in 2001 to NT$179.4 billion (US$5.2 billion) in 2002. This decrease was primarily due to decreases in revenues from our fixed line services, which were partially offset by increases in revenues from our cellular services and our Internet and data services.

Fixed Line Services

      Fixed line revenues comprised 51.6% and 45.4% of our revenues in 2001 and 2002, respectively.

      Local telephone services. Our local telephone revenues decreased by 8.3% from NT$56.5 billion in 2001 to NT$51.8 billion (US$1.5 billion) in 2002. This decrease was primarily due to a 25.2% decline in traffic volume from 45.8 billion minutes in 2001 to 34.3 billion minutes in 2002. This decline in traffic volume was primarily due to a migration of non-HiNet Internet subscribers from dial-up to broadband Internet access, the continued traffic migration from fixed line services to cellular services, and an economic slowdown in Taiwan. This decline in traffic volume was partially offset by a 8.6% increase in average local usage fees, reflecting a decrease in users of our discounted Internet tariff packages. In 2002, we began receiving payments from other operators in connection with their obligation to contribute to the provision of universal telecommunications services. See “Regulation — Telecommunications Act — Provision of Universal Services” beginning on page 118. We recognized NT$0.7 billion in revenues from these operators in 2002. Our local interconnection revenues increased by NT$0.5 billion between these two years because of an increase in interconnection minutes with other fixed line operators.

      Domestic long distance telephone services. Our domestic long distance telephone revenues decreased by 22.1% from NT$18.0 billion in 2001 to NT$14.0 billion (US$403.3 million) in 2002. This decrease was mainly due to a decrease in traffic volume from 7.9 billion minutes in 2001 to 6.8 billion minutes in 2002 and the full-year effect of a tariff adjustment in April 2001. The decrease in traffic volume was primarily due to the

44

continued traffic migration from fixed line services to cellular services and increased competition from other fixed line operators. In addition, revenues related to domestic long distance interconnection decreased by NT$1.0 billion due to traffic migration from fixed line services to cellular services and a decrease in interconnection fees.

      International long distance telephone services. Our international long distance telephone revenues decreased by 23.8% from NT$20.6 billion in 2001 to NT$15.7 billion (US$451.9 million) in 2002. This decrease was primarily due to a decrease in average usage fees and a loss in market share due to increased competition. Our international settlement revenues decreased by 9.3% from NT$4.6 billion in 2001 to NT$4.2 billion (US$119.8 million) in 2002. This decrease was primarily due to the continued decline in international settlement rates.

Wireless Services

      Wireless revenues comprised 31.4% and 35.7% of our revenues in 2001 and 2002, respectively. Our cellular services grew as a percentage of our revenues from 30.7% in 2001 to 35.1% in 2002. Our paging services decreased as a percentage of our revenues from 0.7% in 2001 to 0.6% in 2002.

      Cellular services. Our cellular services revenues increased by 11.0% from NT$56.7 billion in 2001 to NT$62.9 billion (US$1.8 billion) in 2002. This increase was primarily due to a 19.4% increase in the number of cellular subscribers from 6.2 million as of December 31, 2001 to 7.4 million as of December 31, 2002, as well as an increase in outgoing traffic volume from 6.2 billion minutes in 2001 to 7.0 billion minutes in 2002. The increases in the number of subscribers and traffic volume were driven largely by increasing penetration of cellular services combined with lower tariffs for these services and the continued availability of handset subsidies. The effects of these increases were partially offset by a decrease in minutes of usage per user and reduced tariffs.

      Paging services. Our paging revenues decreased by 21.6% from NT$1.3 billion in 2001 to NT$1.1 billion (US$30.3 million) in 2002. This decrease was primarily due to a 33.8% decrease in the number of paging subscribers resulting from the continued customer migration to cellular services.

Internet and Data Services

      Internet and data revenues comprised 15.6% and 17.4% of our revenues in 2001 and 2002, respectively. Our Internet and data revenues increased by 8.4% from NT$28.8 billion in 2001 to NT$31.2 billion (US$898.2 million) in 2002. This increase was principally due to increases in revenues attributable to our Internet services, which was partially offset by decreases in our revenues from data services.

      Internet services. Our revenues attributable to Internet services increased by 36.6% from NT$15.2 billion in 2001 to NT$20.8 billion (US$598.1 million) in 2002. This increase was largely due to an increase in the number of our asymmetrical digital subscriber line subscribers from 857,130 as of December 31, 2001 to 1.7 million as of December 31, 2002. This increase was also due to a 20.8% increase in the number of our HiNet subscribers from 2.7 million as of December 31, 2001 to 3.3 million as of December 31, 2002. Calls to HiNet are recorded as part of our Internet and data services and are not included in our local minutes or revenues. We include usage fees from fixed line telephone calls to access our HiNet service in our Internet and data revenue. Usage fees from fixed line telephone calls to access Internet service providers other than HiNet are recorded as fixed line revenue.

45

      Data services. Revenues from our data services decreased by 23.2% from NT$13.6 billion in 2001 to NT$10.4 billion (US$300.1 million) in 2002. A substantial portion of our data revenues were derived from our leased line services. Despite increased demand for higher speed leased lines, our leased line tariffs have declined significantly due to competition from other fixed line operators and international leased line service providers and a migration of domestic leased line users to asymmetrical digital subscriber line services. The effects of these tariff decreases were partially offset by increases in our bandwidth and number of leased lines.

Other

      Other revenues comprised 1.4% and 1.5% of our revenues in 2001 and 2002, respectively.

      Our other revenues increased by 8.0% from NT$2.5 billion in 2001 to NT$2.7 billion (US$77.7 million) in 2002. This increase in other revenues was principally due to revenues generated from our corporate solution services and billing handling services.

Operating Costs and Expenses

      Our operating costs and expenses decreased by 11.5% from NT$139.8 billion in 2001 to NT$123.7 billion (US$3.6 billion) in 2002. This decrease was primarily due to decreases in our costs of services. As a percentage of revenues, operating costs and expenses decreased from 75.8% in 2001 to 69.0% in 2002.

Costs of Services

      Costs of services include personnel expenses, international settlement costs, handset subsidies, spectrum usage and license fees, costs of materials and maintenance and interconnection fees among cellular operators.

      Our costs of services decreased by 20.1% from NT$72.7 billion in 2001 to NT$58.1 billion (US$1.7 billion) in 2002. This decrease was principally due to reductions in our pension costs, other personnel expenses and certain other costs of services discussed below. Pension costs decreased by 66.7% from NT$7.4 billion in 2001 to NT$2.5 billion (US$71.0 million) in 2002, primarily because we had already fully funded by December 31, 2001 our pension obligations required for our privatization plan. Our personnel expenses, excluding pension costs, decreased by 18.4% from NT$26.9 billion in 2001 to NT$22.0 billion (US$632.2 million) in 2002. This decrease was primarily due to an increase in the number of our employees who retired pursuant to an early retirement plan we implemented during 2001. Our other costs of services decreased by 12.3% from NT$38.4 billion in 2001 to NT$33.7 billion (US$969.3 million) in 2002, primarily as a result of: (1) a decrease in spectrum usage fees due to the cancellation of unused spectrum; (2) a reduction in international settlement costs resulting from decreases in international settlement rates; and (3) a reduction in our cellular handset subsidies, from NT$4.8 billion to NT$3.9 billion, due to a decrease in the number of new cellular services subscribers, partially offset by an NT$1.5 billion increase in interconnection fees from NT$3.4 billion to NT$4.9 billion. In addition, our other costs of services in 2001 were affected by the write-off of the residual value of our advanced mobile phone service as a result of our discontinuation of this service.

46

Marketing

      Our marketing expenses, which include personnel expenses, provisions for bad debt and expenses relating to advertising and other marketing-related activities, decreased by 7.8% from NT$21.9 billion in 2001 to NT$20.2 billion (US$580.3 million) in 2002. Pension costs relating to our marketing activities decreased by 59.2% from NT$2.6 billion in 2001 to NT$1.1 billion (US$30.7 million) in 2002, primarily because we had already fully funded by December 31, 2001 our pension obligations required for our privatization plan. Our personnel expenses, excluding pension costs, decreased by 12.6% from NT$9.3 billion in 2001 to NT$8.1 billion (US$234.3 million) in 2002. This decrease was primarily due to an increase in the number of our marketing employees who retired pursuant to an early retirement plan we implemented during 2001, partially offset by an NT$1.0 billion increase in provisions for bad debt from NT$3.9 billion to NT$4.9 billion, because of an increase in accounts receivable with respect to our cellular services.

General and Administrative

      Our general and administrative expenses decreased by 23.3% from NT$3.5 billion in 2001 to NT$2.7 billion (US$76.2 million) in 2002. Pension costs relating to our general and administrative activities decreased by 63.9% from NT$0.7 billion in 2001 to NT$0.2 billion (US$7.0 million) in 2002, primarily because we had already fully funded by December 31, 2001 our pension obligations required for our privatization plan. Our personnel expenses, excluding pension costs, decreased by 14.1% from NT$2.4 billion in 2001 to NT$2.1 billion (US$60.2 million) in 2002. This decrease was primarily due to an increase in the number of our general and administrative employees who retired pursuant to an early retirement plan we implemented during 2001.

Research and Development

      Our research and development expenses decreased by 13.4% from NT$2.8 billion in 2001 to NT$2.4 billion (US$69.8 million) in 2002. Research and development expenses were equivalent to 1.5% and 1.4% of our revenues in 2001 and 2002, respectively. Pension costs relating to our research and development activities decreased by 58.5% from NT$0.5 billion in 2001 to NT$0.2 billion (US$6.4 million) in 2002, primarily because we had already fully funded by December 31, 2001 our pension obligations required for our privatization plan. Our personnel expenses, excluding pension costs, decreased by 3.6% from NT$1.9 billion in 2001 to NT$1.8 billion (US$52.7 million) in 2002. This decrease was primarily due to an increase in the number of our research and development employees who retired pursuant to an early retirement plan we implemented during 2001.

Depreciation and Amortization

      Our depreciation and amortization expenses increased by 3.5% from NT$38.9 billion in 2001 to NT$40.3 billion (US$1.2 billion) in 2002, due principally to the expansion of our global system for mobile communications network and our asymmetrical digital subscriber line network.

47

Operating Costs and Expenses by Business Segment

					Domestic		International
					Long		Long				Internet
			Local		Distance		Distance		Wireless(1)		and Data		Other		Total
			(in billions of NT$)
As of and for the year ended December 31, 2002
Operating costs and expenses				32.2		2.1		9.1		20.7		14.6		0.7		79.4
	Unallocated corporate expenses															4.0
		Total operating costs and expenses														83.4
Depreciation and amortization				23.1		1.3		0.5		5.6		8.8		0.8		40.1
	Unallocated corporate expenses															0.2
		Total depreciation and amortization														40.3

					Domestic		International
					Long		Long				Internet
			Local		Distance		Distance		Wireless(1)		and Data		Other		Total
			(in billions of NT$)
As of and for the year ended December 31, 2001
Operating costs and expenses				42.4		4.1		12.4		20.4		16.9		1.1		97.3
	Unallocated corporate expenses															3.6
		Total operating costs and expenses														100.9
Depreciation and amortization				23.6		1.4		0.8		4.9		7.7		0.4		38.8
	Unallocated corporate expenses															0.1
		Total depreciation and amortization														38.9

(1)  Includes cellular and paging services.

          Local telephone services.

      Our local telephone operating expenses decreased by 23.8% from NT$42.4 billion in 2001 to NT$32.2 billion (US$0.9 billion) in 2002. This decrease was primarily due to: (1) an NT$4.0 billion decrease in pension costs, because we had already fully funded by December 31, 2001 our pension obligations required by our privatization plan, (2) an NT$3.8 billion decrease in personnel expenses as a result of the increase in the number of employees who retired pursuant to an early retirement plan we implemented during 2001, (3) an NT$1.2 billion decrease in costs of materials and (4) an NT$0.4 billion decrease in maintenance costs. Our depreciation and amortization expenses relating to local telephone services decreased by 2.2% from NT$23.6 billion in 2001 to NT$23.1 billion (US$0.7 billion) in 2002. This decrease was primarily due to the decrease in investments in our local fixed line network.

          Domestic long distance telephone services.

      Our domestic long distance telephone operating expenses decreased by 47.5% from NT$4.1 billion in 2001 to NT$2.1 billion (US$0.1 billion) in 2002. This decrease was primarily due to (1) a decrease in personnel expenses as a result of the increase in the number of employees who retired pursuant to an early retirement plan we implemented during 2001, (2) a decrease in pension costs primarily because we had already fully funded by December 31, 2001 our pension obligations required by our privatization plan and

48

(3) decreases in spectrum usage fees, due to the cancellation of unused spectrum. Our depreciation and amortization expenses relating to domestic long distance telephone services decreased by 6.4% from NT$1.4 billion in 2001 to NT$1.3 billion (US$38.3 million) in 2002. This decrease was primarily due to the decrease in investment in our domestic long distance telephone network.

          International long distance telephone services.

      Our international long distance telephone operating expenses decreased by 27.4% from NT$12.4 billion in 2001 to NT$9.1 billion (US$260.4 million) in 2002. This decrease was primarily due to: (1) an NT$1.4 billion decrease in international settlement payments resulting from the decrease in international settlement fee rates, (2) a decrease in personnel expenses as a result of the increase in the number of employees who retired pursuant to an early retirement plan we implemented during 2001, and (3) a decrease in pension costs primarily because we had already fully funded by December 31, 2001 our pension obligations required by our privatization plan. Our depreciation and amortization expenses relating to international long distance telephone services decreased by 33.0% from NT$0.8 billion in 2001 to NT$0.5 billion (US$15.5 million) in 2002. This decrease was primarily due to the decrease in investments in our international long distance telephone networks.

          Wireless Services.

      Our wireless operating expenses increased by 1.2% from NT$20.4 billion in 2001 to NT$20.7 billion (US$594.9 million) in 2002. This increase was primarily due to (1) an increase in personnel expenses as the number of employees increased, (2) an increase in interconnection fees and (3) an increase in license fees, partially offset by (a) a decrease in costs of materials, (b) a decrease in spectrum usage fees and (c) a decrease in pension costs primarily because we had already fully funded by December 31, 2001 our pension obligations required by our privatization plan. Our depreciation and amortization expenses relating to wireless services increased by 15.6% from NT$4.9 billion in 2001 to NT$5.6 billion (US$161.0 million) in 2002. This increase was primarily due to the expansion of our global system for mobile communications network.

          Internet and Data Services.

      Our Internet and data operating expenses decreased by 13.8% from NT$16.9 billion in 2001 to NT$14.6 billion (US$419.1 million) in 2002. This decrease was primarily due to an NT$2.8 billion decrease in personnel expenses as a result of the increase in the number of employees who retired pursuant to an early retirement plan we implemented during 2001. Our depreciation and amortization expenses relating to Internet and data services increased by 15.2% from NT$7.7 billion in 2001 to NT$8.8 billion (US$254.6 million) in 2002. This increase was primarily due to the increase in equipment investments for asymmetrical digital subscriber line services.

Operating Income and Operating Margin

      As result of the factors described above, our operating income increased by 24.9% from NT$44.6 billion in 2001 to NT$55.7 billion (US$1.6 billion) in 2002. Our operating margin increased from 24.2% in 2001 to 31.0% in 2002.

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      The following table sets forth certain information regarding our operating income by business segment for the periods indicated.

						Domestic		International
						Long		Long				Internet
			Local			Distance		Distance		Wireless(1)		and Data			Other			Total
			(in billions of NT$)
As of and for the year ended December 31, 2002
Income from operations				11.0			7.3		3.6		24.9		11.9			1.2			59.9
	Elimination of intersegment income			(14.5	)		3.3		2.5		12.8		(4.1	)		(—	)		—
				(3.5	)		10.6		6.1		37.7		7.8			1.2			59.9
	Unallocated corporate expenses																		(4.2	)
		Total income from operations																	55.7

						Domestic		International
						Long		Long				Internet
			Local			Distance		Distance		Wireless(1)		and Data			Other		Total
			(in billions of NT$)
As of and for the year ended December 31, 2001
Income from operations				6.4			7.7		5.1		19.5		8.7			0.9		48.3
	Elimination of intersegment income			(15.9	)		4.8		2.3		13.2		(4.5	)		0.1		—
				(9.5	)		12.5		7.4		32.7		4.2			1.0		48.3
	Unallocated corporate expenses																	(3.7	)
		Total income from operations																44.6

(1)  Includes cellular and paging services.

      As result of the factors described above, in 2001 compared to 2002: (1) our local telephone service operating losses decreased by 62.7% from NT$9.5 billion to NT$3.5 billion, (2) our domestic long distance telephone service operating income decreased by 15.7% from NT$12.5 billion to NT$10.6 billion, (3) our international long distance telephone service operating income decreased by 16.7% from NT$7.4 billion to NT$6.1 billion, (4) our wireless service operating income increased by 15.0% from NT$32.7 billion to NT$37.7 billion and (5) our Internet and data service operating losses increased by 85.1% from NT$4.2 billion to NT$7.8 billion.

Other Income and Other Expenses

      Our other income decreased by 31.9% from NT$3.7 billion in 2001 to NT$2.5 billion (US$71.4 million) in 2002. The decrease in our other income was primarily due to: (1) an NT$0.5 billion decrease in interest income from our investments in short-term commercial paper and (2) an NT$0.3 billion decrease in long-term investment income.

      Our other expenses decreased by 7.9% from NT$1.4 billion in 2001 to NT$1.3 billion (US$36.1 million) in 2002. This decrease was largely due to a decrease in interest expenses resulting from a decline in long-term and short-term interest rates, which was partially offset by an increase in long-term investment losses.

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Income Tax

      Our income tax was NT$9.5 billion in 2001, compared to NT$12.8 billion (US$369.5 million) in 2002.

      Our effective tax rate was 20.3% in 2001 and 22.6% in 2002. The lower effective tax rate in 2001 was largely due to NT$2.6 billion in deferred income taxes, as well as NT$0.5 billion in tax savings arising out of our investment in qualified equipment and technology.

Net Income

      As a result of the factors described above, our net income increased by 18.0% from NT$37.4 billion in 2001 to NT$44.1 billion (US$1.3 billion) in 2002.

      Our net margin was 20.3% in 2001 and 24.6% in 2002.

Other Comprehensive Income

      We did not record any other comprehensive income in 2001 and 2002.

Year ended December 31, 2001 compared with year ended June 30, 2000

     Revenues

      Our revenues decreased by 0.4% from NT$185.0 billion for the year ended June 30, 2000 to NT$184.4 billion for the year ended December 31, 2001. This slight decrease was primarily due to decreases in revenues from fixed line services, which were largely offset by increases in revenues from cellular services and Internet and data services.

Fixed Line Services

      Fixed line revenues comprised 63.9% and 51.6% of our revenues for years ended June 30, 2000 and December 31, 2001, respectively.

      Local telephone services. Our local telephone revenues decreased by 8.8% from NT$61.9 billion for the year ended June 30, 2000 to NT$56.5 billion for the year ended December 31, 2001. This decrease was due to declines in our traffic volume and in average per minute local telephone usage fees. In particular, we experienced a 4.5% decline in traffic volume from 48.0 billion minutes for the year ended June 30, 2000 to 45.8 billion minutes for the year ended December 31, 2001 due to a traffic migration from fixed line to cellular services, offset by an increase in dial-up Internet access minutes due to the introduction of our discounted Internet tariff package in January 2001. In addition, a 7.9% decrease in our average per minute local telephone usage fee reflected the full fiscal period effect of discounted Internet tariff packages for high usage customers that were first introduced in April 2000. Although we increased our local interconnection minutes from other cellular operators, revenues from these services decreased by NT$0.8 billion due to a decrease in interconnection service rates.

      Domestic long distance telephone services. Our domestic long distance telephone revenues decreased by 29.8% from NT$25.7 billion for the year ended June 30, 2000 to NT$18.0 billion for the year ended December 31, 2001. This decrease was due to declines in average domestic long distance usage charges and in traffic volume. In particular, average domestic long distance usage charges decreased by 16.0% because we reduced tariffs for our domestic long distance calls by an average of 18% in April 2001. In addition, we experienced a 18.8% decrease in traffic volume from 9.7 billion minutes for the year ended June 30, 2000 to 7.9 billion minutes for the year ended December 31, 2001, principally as a

51

result of a traffic migration from fixed line to cellular services. Although interconnection minutes increased as a result of the higher cellular traffic volume, interconnection fees also decreased during this period. As a result, revenues related to domestic long distance interconnection declined by NT$0.9 billion during this period.

      International long distance telephone services. Our international long distance telephone revenues decreased by 32.9% from NT$30.7 billion for the year ended June 30, 2000 to NT$20.6 billion for the year ended December 31, 2001. This decrease was primarily due to a 15% reduction in our international tariff in July 2000 and the effect of a 37% reduction in our international tariff in April 2001, which was partially offset by a 31.9% increase in international long distance telephone minutes. Our international settlement revenues also decreased from NT$7.3 billion for the year ended June 30, 2000 to NT$4.6 billion for the year ended December 31, 2001. This decrease was principally a result of the continued decline in international settlement rates.

Wireless Services

      Wireless revenues comprised 24.5% and 31.4% of our revenues for the years ended June 30, 2000 and December 31, 2001, respectively. Our cellular services grew as a percentage of our revenues from 22.8% for the year ended June 30, 2000 to 30.7% for the year ended December 31, 2001. Our paging services declined as a percentage of our revenues from 1.7% for the year ended June 30, 2000 to 0.7% for the year ended December 31, 2001.

      Cellular services. Our cellular services revenues increased by 34.1% from NT$42.2 billion for the year ended June 30, 2000 to NT$56.7 billion for the year ended December 31, 2001. This increase was primarily due to a 62.7% increase in the number of cellular subscribers from 3.8 million as of June 30, 2000 to 6.2 million as of December 31, 2001, as well as an increase in outgoing traffic volume from 3.9 billion minutes for the year ended June 30, 2000 to 6.2 billion minutes for the year ended December 31, 2001. The increases in the number of subscribers and traffic volume were driven largely by increasing penetration of cellular services combined with lower tariffs for these services. The increase in cellular services revenues was partially offset by the full period effect of a 16.5% reduction in our tariff in April 2000 and the effect of a 15.2% reduction in our tariff in January 2001.

      Paging services. Our paging revenues decreased by 56.7% from NT$3.1 billion for the year ended June 30, 2000 to NT$1.3 billion for the year ended December 31, 2001. This decrease was principally due to a 69.6% decrease in the number of paging subscribers resulting from continued customer migration to cellular services.

Internet and Data Services

      Internet and data revenues comprised 10.6% and 15.6% of our revenues for the years ended June 30, 2000 and December 31, 2001, respectively. Our Internet and data revenues increased by 47.5% from NT$19.5 billion for the year ended June 30, 2000 to NT$28.8 billion for the year ended December 31, 2001. This increase was principally due to increases in revenues attributable to our Internet services.

      Internet services. Revenues attributable to Internet services increased by 97.6% from NT$7.7 billion for the year ended June 30, 2000 to NT$15.2 billion for the year ended December 31, 2001. This increase was largely due to a 68.8 % increase in the number of our HiNet subscribers from 1.6 million as of June 30, 2000 to 2.7 million as of December 31, 2001. This increase was also due to an increase in our asymmetrical digital subscriber line subscribers from 16,000 for the year ended June 30, 2000 to 857,000 for the year ended

52

December 31, 2001. Calls to HiNet are recorded as part of our Internet and data services and are not included in our local minutes or revenues. We include usage fees from fixed line telephone calls to access our HiNet service in our Internet and data revenues. Usage fees from fixed line telephone calls to access Internet service providers other than HiNet are recorded as local fixed line revenues.

      Data services. Revenues from our data services increased by 14.9% from NT$11.8 billion for the year ended June 30, 2000 to NT$13.6 billion for the year ended December 31, 2001. This increase was primarily due to increased demand for higher speed leased lines, which resulted in total bandwidth of lines leased substantially increasing from 53.8 gigabits per second for the year ended June 30, 2000 to 122.7 gigabits per second for the year ended December 31, 2001. However, this increase in demand was partially offset by a decrease in average tariffs. A substantial portion of our data revenues are derived from our leased line services.

Other

      Other revenues comprised 1.0% and 1.4% of our revenues for the years ended June 30, 2000 and December 31, 2001, respectively.

      Our other revenues increased by 28.5% from NT$1.9 billion for the year ended June 30, 2000 to NT$2.5 billion for the year ended December 31, 2001. This increase in other revenues was principally due to increases in satellite revenues and billing handling service revenues.

     Operating Costs and Expenses

      Our operating costs and expenses increased by 11.4% from NT$125.5 billion for the year ended June 30, 2000 to NT$139.8 billion for the year ended December 31, 2001. This increase was primarily due to an increase in our costs of services and our marketing expenses and, to a lesser degree, general and administrative and research and development expenses. As a percentage of revenues, operating costs and expenses increased from 67.8% for the year ended June 30, 2000 to 75.8% for the year ended December 31, 2001.

Costs of Services

      Costs of services include personnel expenses, international settlement costs, handset subsidies, spectrum usage and license fees, costs of materials and maintenance and interconnection fees between cellular operators.

      Our costs of services increased by 12.2% from NT$64.8 billion for the year ended June 30, 2000 to NT$72.7 billion for the year ended December 31, 2001. Pension costs relating to our costs of services decreased by NT$3.7 billion in 2001, as we had fully funded our pension obligations required for our privatization plan by June 30, 2001. Personnel expenses, excluding pension costs, increased by 2.9% from NT$26.2 billion for the year ended June 30, 2000 to NT$26.9 billion for the year ended December 31, 2001. This increase was largely a result of an increase in employee salaries. In addition, our other costs of services increased by 39.5% from NT$27.5 billion for the year ended June 30, 2000 to NT$38.4 billion for the year ended December 31, 2001, as a result of: (1) an NT$4.5 billion increase in handset subsidies (2) an NT$3.3 billion increase in spectrum usage and license fees, (3) an NT$1.6 billion increase in interconnection fees between cellular operators and (4) the write-off of the residual value of our advanced mobile phone service as a result of our discontinuation of this service in 2001. This increase was partially offset by an

53

NT$3.7 billion decrease in our pension costs, as we had fully funded by June 30, 2001 our pension obligations required for our privatization plan.

Marketing

      Our marketing expenses, which include personnel expenses, provisions for bad debt and expenses relating to advertising and other marketing activities, increased by 21.9% from NT$18.0 billion for the year ended June 30, 2000 to NT$21.9 billion for the year ended December 31, 2001. Pension costs relating to our marketing activities decreased by NT$1.3 billion as we had fully funded by June 30, 2001 our pension obligations required for our privatization plan. Personnel expenses, excluding pension costs, increased by 16.5% from NT$8.0 billion for the year ended June 30, 2000 to NT$9.3 billion for the year ended December 31, 2001. This increase was largely a result of an increase in employee salaries. In addition, beginning in 2000, we no longer required our business and high usage cellular subscribers to make deposits with us to secure their payment obligations. As a result, we set aside an additional NT$3.9 billion of provisions for bad debt in 2001.

General and Administrative

      Our general and administrative expenses increased by 3.3% from NT$3.3 billion for the year ended June 30, 2000 to NT$3.5 billion for the year ended December 31, 2001, largely due to an increase in personnel expenses, excluding pension costs, due to an increase in employee salaries. Pension costs relating to our general and administrative activities decreased by NT$0.2 billion between the year ended June 30, 2000 and the year ended December 31, 2001.

Research and Development

      Our research and development expenses increased by NT$0.1 billion for the year ended December 31, 2001 compared to the year ended June 30, 2000. Research and development expenses were equivalent to 1.5% of our revenues for both the year ended June 30, 2000 and the year ended December 31, 2001. Personnel expenses, excluding pension costs, increased by 9.1% from NT$1.7 billion for the year ended June 30, 2000 to NT$1.9 billion for the year ended December 31, 2001. This increase was primarily due to an increase in employee salaries. Pension costs relating to our research and development activities were NT$0.5 billion for the year ended June 30, 2000 and for the year ended December 31, 2001.

Depreciation and Amortization

      Our depreciation and amortization expenses increased by 6.1% from NT$36.7 billion for the year ended June 30, 2000 to NT$38.9 billion for the year ended December 31, 2001, principally due to the expansion of our global system for mobile communications network and our asymmetrical digital subscriber line network.

54

     Operating Costs and Expenses by Business Segment

					Domestic		International
					Long		Long				Internet
			Local		Distance		Distance		Wireless(1)		and Data		Other		Total
			(in billions of NT$)
As of and for the year ended December 31, 2001
Operating costs and expenses				42.4		4.1		12.4		20.4		16.9		1.1		97.3
	Unallocated corporate expenses															3.6
		Total operating costs and expenses														100.9
Depreciation and amortization				23.6		1.4		0.8		4.9		7.7		0.4		38.8
	Unallocated corporate expenses															0.1
		Total depreciation and amortization														38.9
As of and for the fiscal year ended June 30, 2000
Operating costs and expenses				48.8		3.1		12.2		8.7		10.0		1.8		84.6
	Unallocated corporate expenses															4.2
		Total operating costs and expenses														88.8
Depreciation and amortization				24.6		1.2		1.2		3.0		6.2		0.4		36.6
	Unallocated corporate expenses															0.1
		Total depreciation and amortization														36.7

(1)  Includes cellular and paging services.

          Local telephone services.

      Our local telephone operating expenses decreased by 13.3% from NT$48.8 billion in the fiscal year ended June 30, 2000 to NT$42.4 billion in the fiscal year ended December 31, 2001. This decrease was primarily due to: (1) an NT$4.0 billion decrease in pension costs primarily because we had already fully funded by June 30, 2001 our pension obligations required by our privatization plan and (2) an NT$1.0 billion decrease in costs of materials and maintenance. Our depreciation and amortization expenses relating to local telephone services decreased by 4.3% from NT$24.6 billion in the fiscal year ended June 30, 2000 to NT$23.6 billion in the fiscal year ended December 31, 2001. This decrease was primarily due to the reallocation of network equipment that was originally dedicated to our local telephone services to our Internet and data business.

          Domestic long distance telephone services.

      Our domestic long distance telephone operating expenses increased by 32.9% from NT$3.1 billion in the fiscal year ended June 30, 2000 to NT$4.1 billion in the fiscal year ended December 31, 2001. This increase was primarily due to an NT$0.9 billion increase in spectrum usage fees. Our depreciation and amortization expenses relating to domestic long distance telephone services increased by 22.9% from NT$1.2 billion in the fiscal year ended June 30, 2000 to NT$1.4 billion in the fiscal year ended December 31, 2001. This increase was primarily due to the increased investment in domestic long distance telephone equipment.

55

          International long distance telephone services.

      Our international long distance telephone operating expenses increased by 1.9% from NT$12.2 billion in the fiscal year ended June 30, 2000 to NT$12.4 billion in the fiscal year ended December 31, 2001. This increase was primarily due to an increase in license fees. Our depreciation and amortization expenses relating to international long distance telephone services decreased by 34.0% from NT$1.2 billion in the fiscal year ended June 30, 2000 to NT$0.8 billion in the fiscal year ended December 31, 2001. This decrease was primarily due to the reallocation of network equipment that was originally dedicated to our international long distance telephone services to our Internet and data business.

          Wireless Services.

      Our wireless operating expenses increased by 135.2% from NT$8.7 billion in the fiscal year ended June 30, 2000 to NT$20.4 billion in the fiscal year ended December 31, 2001. This increase was primarily due to: (1) an NT$4.5 billion increase in handset subsidies, (2) an NT$2.4 billion increase in provisions for bad debt, (3) an increase in personnel expenses, excluding pension costs, (4) an NT$1.5 billion increase in interconnection fees between cellular operators, (5) an increase in spectrum usage and license fees, (6) an NT$1.0 billion increase in costs of maintenance and materials and rental fees and (7) the write-off of the residual value of our advanced mobile phone system as a result of the discontinuation of this service in 2001. Our depreciation and amortization expenses relating to wireless services increased by 63.7% from NT$3.0 billion in the fiscal year ended June 30, 2000 to NT$4.9 billion in the fiscal year ended December 31, 2001. This increase was primarily due to the expansion of our global system for mobile communications network.

          Internet and Data Services.

      Our Internet and data operating expenses increased by 68.9% from NT$10.0 billion in the fiscal year ended June 30, 2000 to NT$16.9 billion in the fiscal year ended December 31, 2001. This increase was primarily due to: (1) an NT$2.6 billion increase in personnel expenses as a result in the number of employees, (2) an NT$1.9 billion increase in costs of materials and maintenance, (3) an NT$1.0 billion increase in marketing expenses, (4) an NT$0.6 billion increase in rental fees for telecommunication equipment, and (5) an NT$0.2 increase in spectrum usage and license fees. Our depreciation and amortization expenses relating to Internet and data services increased by 23.8% from NT$6.2 billion in the fiscal year ended June 30, 2000 to NT$7.7 billion in the fiscal year ended December 31, 2001. This increase was primarily due to the increased investments in equipment attributable to the increased number of subscribers for our asymmetrical digital subscriber line services.

     Operating Income and Operating Margin

      As a result of the factors discussed above, our operating income decreased by 25.1% from NT$59.5 billion for the year ended June 30, 2000 to NT$44.6 billion for the year ended December 31, 2001. Our operating margin was 32.2% for the year ended June 30, 2000, compared to 24.2% for the year ended December 31, 2001.

56

      The following table sets forth certain information regarding our income for the periods indicated.

						Domestic		International
						Long		Long				Internet
			Local			Distance		Distance		Wireless(1)		and Data			Other			Total
			(in billions of NT$)
As of and for the year ended December 31, 2001
Income from operations				6.4			7.7		5.1		19.5		8.7			0.9			48.3
	Elimination of intersegment income			(15.9	)		4.8		2.3		13.2		(4.5	)		0.1			—
				(9.5	)		12.5		7.4		32.7		4.2			1.0			48.3
	Unallocated corporate expenses																		(3.7	)
		Total income from operations																	44.6
As of and for the fiscal year ended June 30, 2000
Income from operations				9.6			11.2		14.4		20.1		9.2			(0.7	)		63.8
	Elimination of intersegment income			(21.1	)		10.2		2.9		13.5		(5.9	)		0.4			—
				(11.5	)		21.4		17.3		33.6		3.3			(0.3	)		63.8
	Unallocated corporate expenses																		(4.3	)
		Total income from operations																	59.5

(1)  Includes cellular and paging services.

      As result of the factors described above, in the fiscal year ended June 30, 2000 compared to the fiscal year ended December 31, 2001: (1) our local telephone service operating losses decreased by 18.4% from NT$11.5 billion to NT$9.5 billion, (2) our domestic long distance telephone service operating income decreased by 41.6% from NT$21.4 billion to NT$12.5 billion, (3) our international long distance telephone service operating income decreased by 57.4% from NT$17.3 billion to NT$7.4 billion, (4) our wireless service operating income decreased by 2.9% from NT$33.6 billion to NT$32.7 billion and (5) our Internet and data service operating income increased by 27.6% from NT$3.3 billion to NT$4.2 billion.

     Other Income and Other Expenses

      Our other income increased from NT$1.8 billion for the year ended June 30, 2000 to NT$3.7 billion for the year ended December 31, 2001. The increase in our other income was primarily due to: (1) an increase of NT$0.3 billion in interest income, (2) an increase of NT$0.3 billion in our share of income from investee companies accounted for under the equity method and dividends received from investee companies accounted for under the cost method and (3) an increase of NT$1.0 billion in penalty payments we received in connection with early termination of cellular services subscription contracts.

      Our other expenses increased from NT$0.8 billion for the year ended June 30, 2000 to NT$1.4 billion for the year ended December 31, 2001. This increase was largely due to an NT$0.2 billion increase in interest expenses and an NT$0.2 billion increase in foreign exchange losses.

57

     Income Tax

      Our income tax was NT$13.9 billion for the year ended June 30, 2000, compared to NT$9.5 billion for the year ended December 31, 2001.

      Our effective tax rate was 23.0% for the year ended June 30, 2000 and 20.3% for the year ended December 31, 2001. The lower effective tax rate for the fiscal year ended December 31, 2001 was largely due to NT$0.9 billion in deferred income taxes, as well as NT$1.4 billion in tax savings arising out of our investment in qualified equipment and technology.

     Net Income

      As a result of the factors described above, our net income decreased by 19.8% from NT$46.6 billion for the year ended June 30, 2000 to NT$37.4 billion for the year ended December 31, 2001.

      Our net margin was 25.2% for the year ended June 30, 2000 and 20.3% for the year ended December 31, 2001.

Six months ended December 31, 2000 compared with six months ended December 31, 1999 (unaudited)

Revenues

      Our revenues increased by 3.6% from NT$91.7 billion in the six months ended December 31, 1999 to NT$95.0 billion in the same period in 2000. This increase was primarily due to increases in our cellular and internet and data services, partially offset by a decrease in our domestic long distance telephone, international long distance telephone and paging services.

Fixed Line Services

      Fixed line revenues comprised 64.8% and 58.5% of our revenues in the six months ended December 31, 1999 and 2000, respectively.

      Local telephone services. Our local telephone revenues increased by 0.5% from NT$30.3 billion in the six months ended December 31, 1999 to NT$30.4 billion in the same period in 2000. This increase was primarily due to a 9.6% increase in traffic volume, partially offset by a 13.6% decrease in average per minute local telephone usage fees related to the increased usage of our discounted Internet tariff package and an NT$0.1 billion decrease in interconnection fees.

      Domestic long distance telephone services. Our domestic long distance telephone revenues decreased by 8.0% from NT$13.4 billion in the six months ended December 31, 1999 to NT$12.3 billion in the same period in 2000. This decrease was mainly due to a 12.0% decrease in traffic volume attributable to the traffic migration from fixed line services to cellular services and a decrease in interconnection fees, partially offset by a 3.3% increase in average domestic long distance usage charges due to a marketing promotion offered in the six months ended December 31, 1999, but not in the same period in 2000.

      International long distance telephone services. Our international long distance telephone revenues decreased by 18.4% from NT$15.8 billion in the six months ended December 31, 1999 to NT$12.8 billion in the same period in 2000. This decrease was primarily due to: (1) a 16.0% decrease in average usage fees, as a result of lower rates offered by Super

58

eCall, a telephone service commenced in April 2000, and a downward adjustment in tariffs in July 2000, and (2) an NT$2.0 billion decrease in international settlement receipts.

Wireless Services

      Wireless revenues comprised 24.1% and 27.5% of our revenues in the six months ended December 31, 1999 and 2000, respectively. Our cellular services grew as a percentage of our revenues from 22.3% in the six months ended December 31, 1999 to 26.4% in the same period in 2000. Our paging services decreased as a percentage of our revenues from 1.8% in the six months ended December 31, 1999 to 1.1% in the same period in 2000.

      Cellular services. Our cellular services revenues increased by 22.4% from NT$20.4 billion in the six months ended December 31, 1999 to NT$25.1 billion in the same period in 2000. This increase was primarily due to a 34.0% increase in the number of our cellular subscribers, as well as a 42.3% increase in outgoing traffic volume. The increase was partially offset by a decrease in average minutes of use per user.

      Paging services. Our paging revenues decreased by 39.1% from NT$1.7 billion in the six months ended December 31, 1999 to NT$1.0 billion in the same period in 2000. This decrease was primarily due to a 50% decrease in the number of our paging subscribers.

     Internet and Data Services

      Internet and data revenues comprised 10.2% and 12.9% of our revenues in the six months ended December 31, 1999 and 2000, respectively. Our Internet and data revenues increased by 32.1% from NT$9.3 billion in the six months ended December 31, 1999 to NT$12.3 billion in the same period in 2000.

      Internet services. Our revenues attributable to Internet services increased by 63.5% from NT$3.6 billion in the six months ended December 31, 1999 to NT$5.9 billion in the same period in 2000. This increase was largely due to the substantial growth in revenues attributable to the significant increases in (1) HiNet subscribers from approximately 1.3 million in the six months ended December 31, 1999 to approximately 2.1 million in the same period in 2000, and (2) asymmetrical digital subscriber line subscribers from approximately 7,600 in the six months ended December 31, 1999 to approximately 99,000 in the same period in 2000. Calls to HiNet are recorded as part of our Internet and data services and are not included in our local minutes or revenues. We include usage fees from fixed line telephone calls to access our HiNet service in our Internet and data revenue. Usage fees from fixed line telephone calls to access Internet service providers other than HiNet are recorded as fixed line revenue.

      Data services. Revenues from our data services increased by 12.5% from NT$5.7 billion in the six months ended December 31, 1999 to NT$6.4 billion in the same period in 2000. This increase was largely due to the increase in our data revenues derived from our leased line services as a result of increased demand for higher speed leased lines.

Other

      Other revenues comprised 0.9% and 1.1% of our revenues in the six months ended December 31, 1999 and 2000, respectively.

      Our other revenues increased by 27.6% from NT$0.8 billion in the six months ended December 31, 1999 to NT$1.1 billion in the same period in 2000. This increase in other revenues was principally due to an increase in revenues derived from satellite services.

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     Operating Costs and Expenses

      Our operating costs and expenses increased by 12.5% from NT$59.9 billion in the six months ended December 31, 1999 to NT$67.3 billion in the same period in 2000. The increase was primarily due to the increases in costs of services and marketing expenses. Operating costs and expenses comprised of 65.3% and 70.8% of our operating revenue in the six months ended December 31, 1999 and 2000, respectively.

     Costs of Services

      Costs of services include personnel expenses, international settlement costs, handset subsidies, spectrum usage and license fees, costs of materials and maintenance and interconnection fees between cellular operators.

      Our costs of services increased by 16.6% from NT$30.5 billion in the six months ended December 31, 1999 to NT$35.6 billion in the same period in 2000. The increase was primarily due to: (1) an NT$2.2 billion increase in handset subsidies from NT$0.3 billion to NT$2.5 billion, which were introduced in October 1999, (2) an NT$0.9 billion increase in telecommunications equipment maintenance costs, (3) an NT$0.7 billion increase in land and property taxes as a result of completed transfers of titles of land and properties, and (4) an NT$0.5 billion increase in interconnection fees between cellular operators.

     Marketing Expenses

      Our marketing expenses, which include personnel expenses, provisions for bad debt and expenses relating to advertising and other marketing-related activities, increased by 14.0% from NT$8.4 billion in the six months ended December 31, 1999 to NT$9.6 billion in the same period in 2000. The increase was primarily due to: (1) an NT$0.5 billion increase in provisions for bad debt, (2) an NT$0.2 billion increase in marketing promotion costs of international long distance telephone services and data services and (3) an NT$0.2 billion increase in postage for mailings of bills.

     General and Administrative

      Our general and administrative expenses increased by 4.9% from NT$1.5 billion in the six months ended December 31, 1999 to NT$1.6 billion in the same period in 2000.

     Research and Development

      Our research and development expenses increased were NT$1.3 billion in the six months ended December 31, 1999 and 2000. Our research and development expenses comprised 1.4% of our operating revenue in each of the six months ended December 31, 1999 and 2000.

     Depreciation and Amortization

      Our depreciation and amortization expenses increased by 5.9% from NT$18.2 billion in the six months ended December 31, 1999 to NT$19.2 billion in the same period in 2000, primarily due to the expansion of our global system for mobile communications network and asymmetrical digital subscriber line network.

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     Operating Costs and Expenses by Business Segment

					Domestic		International
					Long		Long				Internet
			Local		Distance		Distance		Wireless(1)		and Data		Other		Total
			(in billions of NT$)
As of and for the six months ended December 31, 2000
Operating costs and expenses				24.3		1.8		5.4		7.3		6.5		0.9		46.2
	Unallocated corporate expenses															1.9
		Total operating costs and expenses														48.1
Depreciation and amortization				12.3		0.6		0.5		2.0		3.4		0.4		19.2
	Unallocated corporate expenses															—
		Total depreciation and amortization														19.2
As of and for the six months ended December 31, 1999 (unaudited)
Operating costs and expenses				22.6		1.3		6.0		4.1		4.9		0.9		39.8
	Unallocated corporate expenses															1.9
		Total operating costs and expenses														41.7
Depreciation and amortization				12.5		0.6		0.5		1.4		2.9		0.2		18.1
	Unallocated corporate expenses															0.1
		Total depreciation and amortization														18.2

(1)  Includes cellular and paging services.

          Local telephone services.

      Our local telephone operating expenses increased by 7.5% from NT$22.6 billion in the six months ended December 31, 1999 to NT$24.3 billion in the same period in 2000. This increase was primarily due to: (1) an NT$0.9 billion increase in telecommunications equipment maintenance costs and (2) an NT$0.7 billion increase in license fees. Our depreciation and amortization expenses relating to local telephone services remained relatively constant at NT$12.5 billion in the six months ended December 31, 1999 and NT$12.3 billion in the same period in 2000.

          Domestic long distance telephone services.

      Our domestic long distance telephone operating expenses increased by 39.8% from NT$1.3 billion in the six months ended December 31, 1999 to NT$1.8 billion in the same period in 2000. This increase was primarily due to increases in spectrum usage and license fees and interconnection fees. Our depreciation and amortization expenses relating to domestic long distance telephone services were NT$0.6 billion in the six months ended December 31, 1999 and 2000.

          International long distance telephone services.

      Our international long distance telephone operating expenses decreased by 9.1% from NT$6.0 billion in the six months ended December 31, 1999 to NT$5.4 billion in the same period in 2000. This decrease was primarily due to an NT$0.8 billion decrease in international settlement payments, partially offset by an increase in marketing expenses. Our

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depreciation and amortization expenses relating to international long distance telephone services were NT$0.5 billion in the six months ended December 31, 1999 and 2000.

          Wireless Services.

      Our wireless operating expenses increased by 75.7% from NT$4.1 billion in the six months ended December 31, 1999 to NT$7.3 billion in the same period in 2000. This increase was primarily due to: (1) an NT$2.2 billion increase in handset subsidies, (2) an NT$0.5 billion increase in interconnection fees between cellular operators and (3) an NT$0.5 billion increase in provisions for bad debt. Our depreciation and amortization expenses relating to wireless services increased by 37.3% from NT$1.4 billion in the six months ended December 31, 1999 to NT$2.0 billion in the same period in 2000. This increase was primarily due to the expansion of our global system for mobile communications network.

          Internet and Data Services.

      Our Internet and data operating expenses increased by 31.9% from NT$4.9 billion in the six months ended December 31, 1999 to NT$6.5 billion in the same period in 2000. This increase was primarily due to: (1) an increase in personnel expenses as a result of the increase in the number of employees and (2) an increase in rental fees for telecommunications equipment. Our depreciation and amortization expenses relating to Internet and data services increased by 16.1% from NT$2.9 billion in the six months ended December 31, 1999 to NT$3.4 billion in the same period in 2000. This increase was primarily due to the increase in the depreciation expenses attributable to the network communications equipment, resulting from the growth of the dial-up services volume.

     Operating Income and Operating Margin

      As a result of the factors described above, our operating income decreased by 12.9% from NT$31.8 billion in the six months ended December 31, 1999 to NT$27.7 billion in the same period in 2000. Our operating margin decreased from 34.7% in the six months ended December 31, 1999 to 29.2% in the same period in 2000.

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      The following table sets forth certain information regarding our operating income by business segment by the periods indicated.

						Domestic		International
						Long		Long				Internet
			Local			Distance		Distance		Wireless(1)		and Data			Other			Total
			(in billions of NT$)
As of and for the six months ended December 31, 2000
Income from operations				3.7			5.9		5.6		8.0		6.7			(0.3	)		29.6
	Elimination of intersegment income			(9.9	)		4.0		1.3		8.8		(4.3	)		0.1			—
				(6.2	)		9.9		6.9		16.8		2.4			(0.2	)		29.6
	Unallocated corporate expenses																		(1.9	)
		Total income from operations																	27.7
As of and for the six months ended December 31, 1999 (unaudited)
Income from operations				6.9			5.6		7.8		9.7		4.2			(0.4	)		33.8
	Elimination of intersegment income			(11.7	)		5.9		1.5		6.9		(2.7	)		0.1			—
				(4.8	)		11.5		9.3		16.6		1.5			(0.3	)		33.8
	Unallocated corporate expenses																		(2.0	)
		Total income from operations																	31.8

(1)  Includes cellular and paging services.

      As result of the factors described above, in the six months ended December 31, 1999 compared to the same period in 2000: (1) our local telephone service operating losses increased by 29.7% from NT$4.8 billion to NT$6.2 billion, (2) our domestic long distance telephone service operating income decreased by 14.4% from NT$11.5 billion to NT$9.9 billion, (3) our international long distance telephone service operating income decreased by 24.8% from NT$9.3 billion to NT$6.9 billion, (4) our wireless service operating income increased by 1.7% from NT$16.6 billion to NT$16.8 billion and (5) our Internet and data service operating income increased by 64.7% from NT$1.5 billion to NT$2.4 billion.

     Other Income and Other Expenses

      Our other income increased by 15.6% from NT$1.1 billion in the six months ended December 31, 1999 to NT$1.2 billion in the same period in 2000, primarily due to an NT$0.1 billion increase in penalties paid to us by our equipment vendors for their late delivery of equipment.

      Our other expenses increased from NT$0.3 billion in the six months ended December 31, 1999 to NT$0.5 billion in the same period in 2000, primarily due to (1) NT$0.1 billion in losses incurred as a result of the earthquake in September 1999, and (2) an NT$91 million increase in interest expense.

     Income Tax

      Our income tax was NT$7.4 billion in the six months ended December 31, 1999, compared to NT$6.8 billion in the same period in 2000.

      Our effective tax rate was 22.6% in the six months ended December 31, 1999 and 23.8% in the same period in 2000.

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     Net Income

      As result of the factors described above, our net income decreased by 14.2% from NT$25.2 billion in the six months ended December 31, 1999 to NT$21.6 billion in the same period in 2000. Our net margin decreased from 27.5% in the six months ended December 31, 1999 to 22.8% in the same period in 2000.

Liquidity and Capital Resources

  Liquidity

      The following table sets forth the summary of our cash flows for the periods indicated:

				Six months			Year ended									Three months ended
	Year Ended			ended			December 31,									March 31,
	June 30,			December 31,
	2000			2000			2001			2002			2002			2002			2003			2003
	(in billions)															(unaudited)
Net cash provided by operating activities	NT$	70.0		NT$	30.0		NT$	73.1		NT$	91.3		US$	2.6		NT$	19.1		NT$	19.5		US$	0.6
Net cash provided by (used in) investing activities		(52.8	)		(25.3	)		(53.7	)		(55.3	)		(1.6	)		(23.1	)		(7.4	)		(0.2	)
Net cash provided by (used in) financing activities		(6.1	)		4.2			(38.9	)		(33.0	)		(0.9	)		4.0			(14.0	)		(0.4	)
Net increase (decrease) in cash and cash equivalents		11.1			8.9			(19.5	)		3.0			0.1			0.0			(1.9	)		0.0
Cash and cash equivalents at beginning of period		4.1			15.2			24.1			4.6			0.1			4.6			7.6			0.2
Cash and cash equivalents at end of period		15.2			24.1			4.6			7.6			0.2			4.6			5.7			0.2

      Our primary source of liquidity is cash flow from operations, which represents operating profit adjusted for non-cash items, primarily depreciation and amortization and changes in current assets and liabilities.

      For the three months ended March 31, 2003, our net cash provided by operating activities amounted to NT$19.5 billion (US$0.6 billion), compared with NT$19.1 billion for the same period in 2002. While net income for the three months ended March 31, 2003 was NT$2.0 billion (US$58.0 million) lower than net income for the same period in 2002, it was offset by an NT$1.2 billion (US$35.8 million) increase in provisions for bad debt and an NT$1.2 billion (US$34.6 million) decrease in cash payments made from accrued expenses in the three months ended March 31, 2003. For the year ended December 31, 2002, our net cash provided by operating activities amounted to NT$91.3 billion (US$2.6 billion) compared with NT$73.1 billion for the same period in 2001. The 25.0% increase in our net cash provided by operating activities was primarily due to an increase in net income of NT$6.7 billion for the year ended December 31, 2002. In addition, our net cash provided by operating activities for the year ended December 31, 2001 was affected by our payment of an additional NT$7.1 billion in taxes on account of the preceding taxable period beginning on July 1, 2000 and ending on December 31, 2001.

      For the year ended December 31, 2001, our net cash provided by operating activities amounted to NT$73.1 billion compared with NT$70.0 billion for the year ended June 30,

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2000. The 4.4% increase in our net cash provided by operating activities was primarily due to a decrease in cash contributions to our pension plans.

      Historically, net cash provided by operating activities has been sufficient to cover our capital expenditures, despite our high level of capital expenditure arising from the ongoing expansion and modernization of our networks. Our net cash used in investing activities decreased from NT$23.1 billion for the three months ended March 31, 2002 to NT$7.4 billion (US$213.4 million) for the same period in 2003, due principally to our NT$10.2 billion payment to the government in March 2002 for our third generation cellular services concession. For the year ended December 31, 2002, our net cash used in investing activities amounted to NT$55.3 billion, compared with NT$53.7 billion for the year ended December 31, 2001, and NT$52.8 billion for the year ended June 30, 2000. The most significant component of our net cash used in investing activities is capital expenditures. Although our capital expenditures decreased in 2002, we made an NT$10.2 billion payment to the government in March 2002 for our third generation cellular services concession, causing our net cash used in investing activities to remain at a relatively constant level over the three-year period ended December 31, 2002.

      For the three months ended March 31, 2003, our net cash used in financing activities amounted to NT$14.0 billion (US$402.7 million), because we reduced our long-term debt by NT$17.0 billion in the three months ended March 31, 2003. For the year ended December 31, 2002, our net cash used in financing activities amounted to NT$33.0 billion (US$0.9 billion), which reflected primarily NT$33.8 billion of dividends paid during that period. For the year ended December 31, 2001, our net cash used in financing activities was NT$38.9 billion, which reflected primarily NT$56.0 billion of dividends paid during that period for the eighteen months ended December 31, 2000, partially offset by an increase in our net outstanding balance of our long-term borrowing. For the year ended June 30, 2000, our net cash used in financing activities amounted to NT$6.1 billion, which reflected primarily a dividend payment of NT$13 billion to the government in anticipation of dividends in respect of the fiscal period beginning on July 1, 1999 and ending on December 31, 2000, partially offset by proceeds from the issuance of commercial paper. This dividend payment was refunded by the government to us, without interest, on December 28, 2000.

  Capital Resources

      We have historically financed our substantial capital expenditure requirements with cash flows from operations.

      In future years, we expect to have capital expenditure requirements for the ongoing expansion and upgrade of our network combined with anticipated outlays for introduction of new services, including our third generation cellular services. We also expect to make dividend payments on an ongoing basis. See “Dividend Policy” beginning on page 18. Further, we may require working capital from time to time to finance purchases of materials for our maintenance and other overheads. We expect to primarily use our cash generated from operations and, to a lesser extent, debt financings to meet our capital expenditure, planned dividend payments, repayment of our debts and other commitments over the next 12 months.

      As of March 31, 2003, our primary source of liquidity was NT$5.7 billion (US$165.0 million) of cash and cash equivalents. As of March 31, 2003, we had short-term lines of credit available from a number of domestic financial institutions, of which we had borrowed NT$3.0 billion (US$86.3 million). The weighted average interest rate for borrowings under these facilities was 1.21%. All of our long-term loans are revolving

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facilities with a term of three years. We are not subject to any covenant under any of our long-term loan facilities.

      In 1995, we and several other utilities in Taiwan that are controlled by the Republic of China government contributed to a fund that allows each of these utilities to borrow funds on an interest-free basis, up to the amount such utility contributed, for the purpose of pipeline construction in connection with its business. As of March 31, 2003, we have contributed NT$1.0 billion to this fund, and are not required to make any additional contributions in the future. As of March 31, 2003, we had total outstanding long-term borrowings of NT$0.7 billion from this fund. We were not required to provide any collateral to secure these borrowings.

      We have a revolving credit facility with a term of one year. As of March 31, 2003, we had not made any drawdowns under this facility. We are not subject to any covenant for borrowings under this facility. In the past, we had from time to time issued commercial paper to fund our working capital needs. As of March 31, 2003, all of our commercial paper had been repaid. We may issue commercial paper in the future for our short term cash requirements.

      We have not entered into any financial guarantees or similar commitments to guarantee the payment obligations of third parties. In addition, we do not have any written options on non-financial assets.

      Set forth below are our total contractual obligations for the repayment of our debt as of March 31, 2003.

											After
			Total		2003		2004-2005		2006-2007		2007
			(in billions of NT$)
Contractual Obligations
	Short-term borrowings			3.0		3.0		—		—		—
	Long-term debt			0.7		—		0.2		0.5		—
	Lease obligations			—		—		—		—		—
	Other long-term obligations			—		—		—		—		—
		Total contractual obligations		3.7		3.0		0.2		0.5		—

Capital Expenditures

      The following table sets forth a summary of our capital expenditures, according to our principal lines of business, for the periods indicated.

							For the Year ended								For the three months
			For the year				December 31,								ended March 31,
			ended
			June 30,
			2000				2001				2002				2002				2003
															(unaudited)
			(in billions of NT$, except percentages)
Capital Expenditures
	Fixed line			37.3	70.3	%		22.7	42.9	%		21.3	49.4	%		6.8	62.2	%		4.9	66.0	%
	Cellular			9.4	17.6			12.7	23.9			4.8	10.9			0.6	5.2			0.3	4.1
	Internet and data			4.8	9.1			16.2	30.6			16.0	36.9			3.5	31.9			0.2	2.5
	Others			1.6	3.0			1.3	2.6			1.2	2.8			0.1	0.7			2.0	27.4
		Total capital expenditures		53.1	100.0	%		52.9	100.0	%		43.3	100.0	%		11.0	100.0	%		7.4	100.0	%

(1)  The allocation of our capital expenditures to fixed line and Internet and data business segments for the year ended June 30, 2000 was computed on a different basis than in later periods and may, therefore, not be directly comparable.

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      Capital expenditures amounted to NT$7.4 billion (US$213.4 million) for the three months ended March 31, 2003. During this period, 66.0% of our capital expenditures were spent on fixed line services, 4.1% on cellular services, 2.5% on internet and data services and 27.4% on other items.

      Capital expenditures amounted to NT$43.3 billion (US$1.2 billion) for the year ended December 31, 2002. During this fiscal year, 49.4% of our capital expenditures was spent on fixed line services, 10.9% on cellular services, 36.9% on Internet and data services and 2.8% on other items.

      Capital expenditures amounted to NT$52.9 billion for the year ended December 31, 2001. During this fiscal year, 42.9% of our capital expenditures was spent on fixed line services, 23.9% on cellular services, 30.6% on Internet and data services and 2.6% on other items.

      Capital expenditures amounted to NT$53.1 billion for the year ended June 30, 2000. During this fiscal year, 70.3% of our capital expenditures was spent on fixed line services, 17.6% on cellular services, 9.1% on Internet and data services and 3.0% on other items.

      We currently estimate our capital expenditures to be approximately NT$33.0 billion for the year ending December 31, 2003. These planned capital expenditures include expenditures relating to the rollout of our third generation cellular services network.

      The following table sets forth a summary of our planned capital expenditures, according to our principal lines of business, for the years ending December 31, 2003 and 2004.

			For the Year ending December 31,
			2003				2004
			(in billions of NT$, except
			percentages)
Capital Expenditures
	Fixed line			10.1	30.6	%		5.3	21.8	%
	Cellular			7.3	22.1			5.8	23.9
	Internet and data			14.8	44.9			12.4	51.0
	Others			0.8	2.4			0.8	3.3
		Total capital expenditures		33.0	100.0	%		24.3	100.0	%

      We expect fixed line investments to account for an increasingly smaller portion of our capital expenditures, and we expect cellular and Internet and data investments to account for an increasingly larger portion of our capital expenditures.

      We expect our total capital expenditures to decline in future periods, because of: (1) a reduced need for significant spending on additional fixed line infrastructure; (2) lower spending on cellular services equipment, as the existing installed capacity is sufficient to meet our current needs; (3) an increased focus on value added services, which require lower investment than basic infrastructure; and (4) our ability to reduce the procurement cost of broadband equipment.

Off-Balance Sheet Arrangements

      We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. We do not engage in trading activities involving non-exchange traded contracts.

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Transactions with Related Parties

      We have not extended any loans or credit to any of our directors, supervisors or executive officers, and we have not provided guarantees for borrowings by any of these persons. We have not entered into any fee-paying contract with any of these persons for him or her to provide services not within his or her capacity as a director, supervisor or executive officer of our company, except that three of our directors who are also our employees receive salaries from our company in their capacity as our employees.

      We currently own 40% of Taiwan International Standard Electronics. We have purchased telecommunications exchange facilities and related supplies and replacement parts from Taiwan International Standard Electronics. We acquired from Taiwan International Standard Electronics several telecommunications exchange facilities and related supplies and replacement parts for approximately NT$4.3 billion in the year ended June 30, 2000, NT$1.8 billion in the six months ended December 31, 2000, NT$3.0 billion in the year ended December 31, 2001, NT$6.9 billion (US$197.9 million) in the year ended December 31, 2002, and NT$0.2 billion (US$6.2 million) in the three months ended March 31, 2003. We believe that these transactions with Taiwan International Standard Electronics have been conducted on arms’ length terms.

Principal Accountant Fees and Services

      The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by T.N. Soong & Co., our principal external auditors, for the years indicated. T.N. Soong & Co. and Deloitte & Touche (Taiwan) established Deloitte & Touche effective June 1, 2003. We did not pay any other fees to our auditors during the periods indicated below.

	For the year ended December 31,
	2001		2002
	(in thousands)
Audit fees(1)	NT$	25,807	NT$	23,800	US$685
Audit-related fees(2)		3,665		—	—
Tax fees(3)		461		300	9

(1)	“Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our annual financial statements or services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements.
(2)	“Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our principal auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees”. Services comprising the fees disclosed under the category of “Audit-related fees” involve principally the issuance of agreed upon procedure letters.
(3)	“Tax fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for tax compliance, tax advice, and tax planning. Services comprising the fees disclosed under the category of “Tax Fees” involve tax advice.

Inflation

      Inflation in Taiwan has not had a material impact on our results of operations in recent years. Inflation in Taiwan was approximately 0.18% in 1999 and 1.26% in 2000. Taiwan

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experienced deflation of 1.69% in 2001. Inflation was 0.76% in 2002. Deflation was 1.00% in the three months ended March 31, 2003.

Foreign Exchange

      Our revenues and our costs and expenses are largely denominated in NT dollars. Our principal expenses denominated in foreign currencies are capital expenditures on telecommunications equipment and settlement payments for the use of networks of carriers in foreign countries for outgoing international calls. Settlement receipts have been a principal source of foreign currency for us. While future fluctuations of the NT dollar against foreign currencies could impact our financial condition and results of operations, we have not to date been materially affected by the fluctuation of the NT dollar against foreign currencies.

Recent Accounting Pronouncements

      In June 2001, the Financial Accounting Standard Board issued the Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”, which requires, among other provisions, retirement obligations to be recognized when they are incurred and displayed as liabilities, with a corresponding amount capitalized as part of the related long-lived asset. The capitalized element is required to be expensed using a systematic and rational method over its useful life. We have assessed the impact of the adoption of this standard and believe there is no material impact on our financial statements.

      In June 2002, the Financial Accounting Standard Board issued the Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This statement requires that a liability for a cost associated with an exit or disposal activity be measured at fair value and recorded when it meets the definition of a liability in the Financial Accounting Standard Board Concepts Statement No. 6, “Elements of Financial Statements”. This statement superceded Emerging Issues Task Force No. 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (Including Certain Costs Incurred in Restructuring)”, which required recognition of a liability for costs associated with an exit or disposal activity when the company committed to an exit/disposal plan. This statement is effective for exit or disposal activities initiated after December 31, 2002. Restatement of prior periods is not required. This statement applies to future restructuring activities, and the application of this statement has no impact on our financial statements.

      In December 2002, the Financial Accounting Standard Board issued the Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, which amends Statement of Financial Accounting Standards No. 123 “Accounting for Stock Based Compensation”. This statement provides alternative methods of transition for an equity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure provisions of Statement of Financial Accounting Standards No. 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. This statement was effective January 1, 2003 and does not have a material impact on our financial statements.

      In November 2002, the Financial Accounting Standard Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as

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standby letters of credit. It also clarifies that at the time a company issues a guarantee, it must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee, and must disclose that information on its interim and annual financial statements. The provisions related to recognition of a liability at inception of the guarantee for the fair value of the guarantor’s obligations do not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002 and is not expected to have a material impact on the accompanying financial statements.

      In January 2003, the Financial Accounting Standard Board issued Financial Interpretation No. 46, “Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin No. 51”. Financial Interpretation No. 46 requires the primary beneficiary to consolidate a variable interest entity if it has a variable interest that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur, or both. Financial Interpretation No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which the entity obtains an interest after that date. For variable interest entities acquired before February 1, 2003, the effective date for our company is July 1, 2003. We are currently in the process of determining the impact of this statement on our financial condition, results of operations and cash flows.

      In November 2002, the Emerging Issues Task Force reached a consensus on Emerging Issues Task Force 00-21, “Revenue Arrangements with Multiple Deliverables”, related to the timing of revenue recognition for arrangements in which goods or services or both are delivered separately in a bundled sales arrangement. The Emerging Issues Task Force requires that when the deliverables included in this type of arrangement meet certain criteria, they should be accounted for separately as separate units of accounting. This may result in a difference in the timing of revenue recognition, but will not result in a change in the total amount of revenue recognized in a bundled sales arrangement. The allocation of revenue to the separate deliverables is based on the relative fair value of each item. If the fair value is not available for the delivered items then the residual method must be used. This method requires that the amount allocated to the undelivered items in the arrangement is their full fair value. This would result in the discount, if any, being allocated to the delivered items. This consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. We do not believe there will be a significant impact of this consensus on our financial condition, results of operations and cash flows.

      In January 2003, the Emerging Issues Task Force reached a consensus on Emerging Issues Task Force 02-18, “Accounting for Subsequent Investments in an Investee after Suspension of Equity Method Loss Recognition”. This consensus states that if an additional investment, in whole or in part, represents the funding of prior losses for an equity-method investee, the investor should recognize the previously suspended losses. This determination would be based on various factors, including whether the investment results in an increased ownership percentage, whether the fair value of the consideration received is equivalent to the consideration paid and whether the investment is acquired from a third party or directly from an investee. If any of these provisions are met, the additional investment would generally not be considered as funding prior losses. When appropriate to recognize prior losses, the amount recognized would be limited to the amount of the additional investment determined to represent the funding of prior losses. This consensus will be effective for additional investments made after February 5, 2003. There has been no significant impact to

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our financial condition, results of operations and cash flows since the effective date of this consensus.

      In April 2003, the Financial Accounting Standard Board issued the Statement of Financial Accounting Standards No. 149, “Amendment to Statement 133 on Derivative instruments and Hedging Activities”. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement of Financial Accounting Standards No. 133. This statement is applied prospectively and is effective for contracts entered into or modified after June 30, 2003. We have not determined the effect, if any, that this statement will have on our statements.

      In May 2003, the Financial Accounting Standard Board issued the Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This statement establishes standards for how an issuer classifies and measures certain financial instruments. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This statement requires that certain financial instruments that, under previous guidance, could be accounted for as equity be classified as liabilities, or assets in some circumstances. This statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. This statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities whose shares are mandatorily redeemable. We do not expect the adoption of this statement to have an impact on our financial statements.

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Market Risk

      Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. In the normal course of business, we are routinely subject to a variety of risks, including market risk associated with interest rate movements and currency rate movements on non-U.S. dollar denominated assets and liabilities.

      We regularly assess these financial instruments and their ability to address market risk and have established policies and business practices to protect against the adverse effects of these and other potential exposures.

Interest rate sensitivity

      We had a portfolio of fixed rate debt of approximately NT$17.0 billion and NT$17.7 billion (US$0.5 billion) as of December 31, 2001 and 2002, respectively, and NT$3.0 billion (US$0.1 billion) as of March 31, 2003. A hypothetical 10.0% change in interest rates would not have a material impact on the fair market value or cash flows associated with this debt. We do not hedge any interest rate exposures.

Foreign currency risk

      We have entered into certain transactions denominated in foreign currencies primarily related to international settlement payments associated with our services for international calls. Each individual currency exposure is relatively small and thus we do not hedge any foreign currency exposures. Gains and losses from these transactions as of March 31, 2003 were not material to our financial condition and results of operations.

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THE TAIWAN TELECOMMUNICATIONS INDUSTRY

Overview

      The Taiwan telecommunications industry is one of the most developed in the Asia Pacific region in terms of fixed line, cellular and broadband Internet penetration. As of December 31, 2002, the fixed line penetration rate, which is calculated by dividing the number of lines in service by the population in Taiwan, was 58.2%. As of December 31, 2002, the cellular penetration rate, which is calculated by dividing the number of cellular subscribers by the population in Taiwan, was 106.1%, and the asymmetrical digital subscriber line penetration rate, which is calculated by dividing the number of lines in service by the number of households in Taiwan, was 26.3%. From January 1, 2001 to December 31, 2002, the number of cellular subscribers increased from approximately 17.9 million to approximately 23.9 million, and the number of Internet subscribers increased from approximately 4.7 million to approximately 7.5 million. In addition, the number of broadband Internet subscribers has increased significantly during 2002. Asymmetrical digital line subscribers increased from 920,000 as of December 31, 2001 to 1.8 million as of December 31, 2002, and cable modem subscribers increased from 210,000 to 280,000 during the same period. The bandwidth demand for leased line services also increased during this period.

      Historically, the telecommunications sector in Taiwan consisted of one telecommunications service provider owned and controlled by the government of the Republic of China through the Directorate General of Telecommunications, an agency under the supervision of the Ministry of Transportation and Communications. In February 1996, as part of the efforts to reorganize and introduce competition to the telecommunications industry, the government passed legislation designating the Directorate General of Telecommunications as the industry regulator under the supervision of the Ministry of Transportation and Communications. As part of the separation of the business and regulatory functions of the Directorate General of Telecommunications, we were incorporated on July 1, 1996.

      The legislation also divides telecommunications services into two categories:

•  Type I: Type I services include fixed line services, such as local, domestic long distance and international long distance services, as well as interconnection, leased line, asymmetrical digital subscriber line and satellite services and wireless services, such as cellular, including third generation cellular, paging, mobile data and trunked radio services.

•  Type II: Type II services refer to all telecommunications services other than Type I services. Type II services are divided into special services and general services. Special services include simple resale, voice over Internet protocol and other services designated by the Ministry of Transportation and Communications. General services include any Type II service other than the special services.

      In connection with Taiwan’s entry into the World Trade Organization, the timetable for industry deregulation was accelerated. Wireless services were deregulated first, with the government issuing over 40 licenses in various wireless businesses since 1997. As of March 2001, the government awarded fixed line licenses to three additional operators. These operators have begun operations since June 2001. We are in the process of reaching agreement with these operators regarding the unbundling of local loop access. As part of the industry deregulation, fixed line number portability has been made available to all customers since May 2002. In addition, the market for resale of international long distance and voice over Internet protocol services was deregulated in July 2001, and four undersea

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cable services licenses have been granted since August 2001. Furthermore, the Telecommunications Act has been amended to increase the maximum direct foreign ownership percentage in a Type I service provider, except for us, from 20% to 49%, and the combined direct and indirect foreign ownership in a Type I service provider, except for us, has remained at 60%.

      For a more detailed discussion of the regulation of the Taiwan telecommunications industry, see “Regulation” beginning on page 110.

Fixed Line

      The following table compares the fixed line penetration rate as of December 31, 2002, calculated in terms of lines per 100 people, in Taiwan with that of other countries and regions in the Asia Pacific region.

Country or region	Lines per 100 people
Hong Kong		58.3
Taiwan		57.9
Australia		52.8
New Zealand		51.5
Japan		50.0
South Korea		47.8
Singapore		47.5
Malaysia		19.8
Mainland China		14.1
Thailand		10.2

Source:  Pyramid Research 2002.

      The fixed line subscriber base in Taiwan has grown at an average annual rate of 3.8% during the past five years. Due to the high penetration rate, subscriber growth has been on a declining trend from 1998 to 2002.

      The following table shows the historical information with respect to fixed line subscriber numbers and growth rates in Taiwan.

	As of December 31,
	1998			1999			2000			2001			2002
	(in thousands, except percentages)
Lines in service		11,500			12,043			12,642			12,858			13,099
Growth rate (compared to previous year/period)		5.9	%		4.7	%		5.0	%		1.7	%		1.9	%
Penetration rate (as a percentage of population)		52.4	%		54.5	%		56.8	%		57.4	%		58.2	%

Source:  Ministry of Transportation and Communications, Highlights of Transportation and Communications Statistics in Taiwan, 2003.

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Wireless

  Cellular

      The following table compares the cellular penetration rate as of December 31, 2002, calculated in terms of the number of subscribers as a percentage of population, in Taiwan with that of other countries and regions in the Asia Pacific region.

Country or region	Wireless penetration rate
Taiwan		106.0	%
Hong Kong		85.2	%
Singapore		78.0	%
Australia		67.4	%
South Korea		66.9	%
New Zealand		61.1	%
Japan		57.9	%
Malaysia		39.4	%
Thailand		28.2	%
Mainland China		16.1	%

Source:  Baskerville, Global Mobile Subscriber Database, December 31, 2002.

      The opening of cellular services in Taiwan to competition in 1997 has led to increased service innovation, creative marketing and the introduction of various value added services. The following table shows historical information with respect to cellular subscriber numbers and growth rates in Taiwan.

	As of December 31,
	1998			1999			2000			2001			2002
	(in thousands, except percentages)
Cellular subscribers		4,727			11,541			17,874			21,633			23,905
Growth rate (compared to the same period in previous year)		216.8	%		144.2	%		54.9	%		21.0	%		10.5	%
Penetration rate (as a percentage of population)		21.6	%		52.2	%		80.2	%		96.6	%		106.1	%

Source:  Ministry of Transportation and Communications, Highlights of Transportation and Communications Statistics in Taiwan, 2003.

  Paging

      The paging subscriber base in Taiwan has declined in recent years due to the increasing popularity of cellular telephones. The following table shows the historical information with respect to paging subscriber numbers and growth rates in Taiwan.

	As of December 31,
	1998			1999			2000			2001			2002
	(in thousands, except percentages)
Paging subscribers		4,261			3,873			2,813			1,756			1,598
Growth rate (compared to the same period in previous year)		61.3	%		(9.1	)%		(27.4	)%		(37.6	)%		(9.0	)%

Source: Ministry of Transportation and Communications, Highlights of Transportation and Communications Statistics in Taiwan, 2003.

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Internet

      The Internet access market in Taiwan has grown rapidly as a result of the government’s promotion of the Internet and e-commerce, infrastructure upgrades and local content development. The number of Internet subscribers in Taiwan increased from approximately 1.7 million at the end of 1998 to 7.5 million at December 31, 2002, which represented a penetration rate of approximately 33.1%. We expect the availability of broadband Internet access technologies and multimedia content to continue to drive growth in Internet penetration. There are currently 171 commercial Internet service providers in Taiwan. The following table shows historical information relating to Internet subscriber numbers and growth rates in Taiwan.

			As of December 31,
			1998			1999			2000			2001			2002
			(in thousands, except percentages)
Internet subscribers				1,665			2,874			4,650			6,232			7,454
Growth rate (compared to the same period in previous year)				288.1	%		72.6	%		61.8	%		34.0	%		19.6	%
Penetration rate (as a percentage of population)				7.6	%		13.0	%		20.9	%		27.8	%		33.1	%
Broadband Internet subscribers Asymmetrical digital subscriber line subscribers				N/A			N/A			116			920			1,820
	Cable modem subscribers			N/A			N/A			113			210			280
		Total broadband Internet subscribers		N/A			N/A			229			1,130			2,100

Sources: Ministry of Transportation and Communications, Highlights of Transportation and Communications Statistics in Taiwan, 2003; and Institute for Information Industry — Focus on Internet News and Data, 2003.

Leased Line Services

      The growth of the Internet, the wider adoption of multimedia applications and the increase in network usage by businesses have created an increasing demand for bandwidth and data services. In addition, bandwidth demand for leased line services has been impacted by the increased demand for leased lines from Internet service providers and from cellular operators for interconnection services relating to cellular call traffic. The following table shows historical information on leased lines and growth rates in Taiwan.

	As of December 31,
	1998			1999			2000			2001			2002
	(in thousands, except percentages)
Leased lines		98			114			131			147			152
Growth rate (compared to the same period in previous year)		32.4	%		16.3	%		14.9	%		12.2	%		3.4	%

Source: Ministry of Transportation and Communications, Highlights of Transportation and Communications Statistics in Taiwan, 2003.

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BUSINESS

      We are the largest telecommunications service provider in Taiwan and one of the largest in Asia in terms of revenues. As an integrated telecommunications service provider, our principal services include:

•  Fixed line services, including local, domestic long distance and international long distance telephone services, as well as interconnection services;

•  Wireless services, including cellular and paging services; and

•  Internet and data services, including HiNet, our Internet service provider, asymmetrical digital subscriber line services and leased line services.

      Historically, we have derived a substantial majority of our revenues from fixed line services. However, as our traditional business has matured and new technologies have become available, we have also pursued new growth opportunities in the cellular and Internet services markets. For example, our cellular services revenues achieved a compound annual growth rate of 17.2% over the two and a half years ended December 31, 2002 and represented 35.1% of our revenues for that year. Our Internet services revenues achieved a compound annual growth rate of 48.8% over the two and a half years ended December 31, 2002 and represented 11.6% of our revenues for that year.

      We are focusing on expanding our leading position in each of our principal lines of business:

•  We are Taiwan’s largest fixed line service provider in terms of both revenues and subscribers. We had approximately 13 million lines in service as of March 31, 2003;

•  We are Taiwan’s largest cellular service provider in terms of both revenues and subscribers. We had approximately 7.6 million subscribers as of March 31, 2003, equivalent to a market share of approximately 30.8% of total cellular services subscribers and 34.8% of total cellular services revenues in Taiwan as of that date;

•  We are Taiwan’s largest broadband Internet access provider with approximately 1.9 million asymmetrical digital subscriber line subscribers as of March 31, 2003. We are also Taiwan’s largest Internet service provider in terms of subscribers, with 3.4 million subscribers for our HiNet service, as of March 31, 2003, which represented a subscriber market share of approximately 42%; and

•  We are a leading player in the data communications market in Taiwan.

      For the year ended December 31, 2002, our revenues were NT$179.4 billion (US$5.2 billion), our net income was NT$44.1 billion (US$1.3 billion) and our net income per share was NT$4.57 (US$0.13).

Competitive Strengths

      We believe that we are well positioned to take advantage of growth opportunities in the telecommunications market in Taiwan as new technologies evolve. We have responded effectively to competitive markets in cellular and Internet and data services, which have been open to competition for the past several years, as evidenced by our continued leadership position in those markets. In anticipation of competition in the fixed-line market, which began in June 2001, we substantially reduced our international tariffs to defend our market position. We have enjoyed greater flexibility in making purchasing decisions after the Ministry of Transportation and Communications granted us limited special relief from the strict

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requirements of the Government Procurement Law. In addition, our responsiveness to market conditions has been enhanced by the shortening of the approval period for primary tariff adjustments and promotional packages from 40 to 14 days.

      We believe that further deregulation and market liberalization will continue to drive the growth of the overall market for telecommunications services as well as the development of new products and services. We expect to benefit from the opportunity to compete in this larger market.

      We believe that our primary competitive strengths are:

•  Our position as the incumbent telecommunications service provider, and

•  Our technology and capital resources, which we believe we can build on to expand our leading position in the growing cellular and Internet services markets.

  We are the only integrated full service telecommunications provider in Taiwan

      We are the largest telecommunications service provider in Taiwan with a leading position in local, domestic long distance and international long distance telephone services, wireless services and Internet and data services.

      Total communications solutions. We believe that our ability to provide a comprehensive range of telecommunications services uniquely positions us to provide bundled and value added services to our business and residential customers. In addition, we are able to offer innovative service and tariff packages to meet the individual needs of our customers.

      Broad network coverage. The breadth of our network and our ownership of the so called “last mile” infrastructure, which comprises the connection between the local telephone service provider’s switching centers to the end-users’ buildings or homes, provides us with access to existing and potential customers and creates a platform for expanding our services. As of March 31, 2003, approximately 99% of our installed telephone lines are capable of delivering asymmetrical digital subscriber line services. In addition, our cellular services network provides nationwide coverage. Our large cellular spectrum allocation and our network of over 7,400 base stations position us well for the continued expansion of our cellular services in Taiwan.

      Brand awareness, distribution channels and customer service. Our principal brands “Chunghwa Telecom” and “HiNet” have a reputation for quality, reliability and technology. In particular, we are the leading Internet service provider in Taiwan through HiNet. We serve our large and well established customer base through our extensive customer service network in Taiwan, including 31 operations offices, 265 service centers and six integrated call centers. We also offer comprehensive and high quality point of sale and after sale service, and also provide web-based customer services. Moreover, our extensive sales and distribution channels help us capture additional customers and develop new business opportunities.

      Operational expertise. Due to our longer operating history and greater size as compared with other telecommunications service providers in Taiwan, our management and employees have extensive operating experience and technical knowledge in the telecommunications industry in Taiwan which we believe cannot be easily replicated by competitors. We believe we will continue to attract and retain high quality employees.

      Comprehensive customer billing infrastructure. As Taiwan’s leading telecommunications services provider, we have extensive resources and infrastructure relating to billing services. In particular, we issue over 20 million invoices to almost every household and enterprise in

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Taiwan every month. We intend to continue leveraging this unique attribute by offering bill collection services to Internet content providers and other entities, who lack the necessary resources and infrastructure for customer billing.

   We have the capital resources and technology to expand our leading position in the growing cellular and Internet services markets

      Established position in growing markets. Revenues from our wireless and Internet and data services have increased from 35.1% of revenues for the year ended June 30, 2000 to 55.8% for the three months ended March 31, 2003. We expect our cellular and Internet services to continue to be the key drivers of our future growth. With our leading market share, we enjoy substantial economies of scale in equipment procurement and marketing.

      Strong capital structure. We believe we have greater financial resources than other telecommunications operators in Taiwan. In particular, our relatively low debt to equity capital structure, together with our strong cash flow position provide us with the flexibility and resources to invest in capital intensive and growing businesses. In particular, we continue to invest in fiber optic based technologies, and we expect to invest in third generation cellular communications networks and services.

      Advanced network technology. Since July 1, 1999, we have spent in excess of NT$170 billion on capital expenditures, including developing advanced networks, such as an asymmetrical digital subscriber line, a super high speed Internet protocol backbone network and a third generation cellular services network. Our investment in network infrastructure places us in a position to capture a significant share of Internet related and high speed data transmission businesses.

      Research and development expertise. We employ over 1,200 research professionals and engineers whose principal focus is to develop advanced network services and operations support systems and to build selected core technologies. In 2002, we spent approximately 1.4% of our revenues on research and development, which excludes depreciation and amortization. We believe our focus on research and development will allow us to efficiently develop and deploy new technologies and services in advance of our competitors.

Business Strategy

      Taiwan has one of the highest fixed line penetration rates in Asia and has also experienced rapid adoption of wireless communications and Internet services, including broadband access services. We believe that telecommunications services will evolve over the coming years, driven by technological advancement. We also believe that the convergence of communications technologies will provide a significant competitive advantage to telecommunications service providers that are able to design and construct sophisticated and scalable networks able to serve as a common platform for a broad range of services.

      Our key strategic objectives are to maintain our position as a leading integrated telecommunications service provider in Taiwan and to expand our leadership position in growing markets, such as cellular and Internet markets, including broadband access services and value added services.

      Consistent with our strategic objectives, we have developed the following business strategies.

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Improve operational efficiency and cost structure through reallocation of resources to growing businesses and reduction of personnel costs and capital expenditures

      We intend to improve our operational efficiency by reallocating our resources to growing businesses and reducing our personnel costs. For example, we offered a number of voluntary retirement programs between June 1, 2000 and December 31, 2001, which resulted in a reduction in our workforce of 6,480 employees, or approximately 20% of our total workforce before the implementations of these voluntary retirement programs. We intend to offer similar programs in the future to the extent necessary to reduce our personnel costs. In addition, we will continue to realign our organizational structure with an emphasis on integrating our various operating units and departments on the local level to increase our operational efficiency. Furthermore, we will continue to reallocate our personnel from traditional fixed line services to our growing businesses and to our marketing and customer services departments.

      We also intend to improve our cost structure by, among other things, lowering our capital expenditures. For the past three fiscal years, our average annual capital expenditures totaled NT$49.8 billion. We plan to incur capital expenditures in the amounts of NT$33.0 billion and NT$24.3 billion in 2003 and 2004, respectively. This substantial reduction in our capital expenditures is largely because of: (1) a reduced need for significant spending on additional fixed line infrastructure, (2) lower spending on cellular services equipment, as the existing installed capacity is sufficient to meet our current needs, (3) an increased focus on value added services, which require lower investment than basic infrastructure and (4) our ability to reduce the procurement cost of broadband equipment.

  Emphasize quality of service and customer satisfaction

      Quality of service is critical in attracting and retaining customers and enhancing our long term profitability. In order to continually assure and improve the quality of our services, we have, in addition to the quality assurance function of our regular operating units, established a number of dedicated task forces to continually monitor our network performance. Our senior management sets our quality evaluation criteria and regularly reviews our
performance quality.

      In order to further enhance customer loyalty, we plan to continue to focus on and invest in the provision of a full range of services that emphasize customer care from the point of sale onward. We have extended the focus of our business customer services group from major accounts to include small and medium enterprises. Our business customer service group is staffed by over 610 professionals and offers packaged and customized services, innovative telecommunications solutions and dedicated customer support. In addition, we now offer a consolidated billing system for customers who use multiple services.

Focus resources on growing cellular and Internet markets

      We will continue to focus our resources on services that have potential for future growth, including cellular and Internet services.

      Cellular. In addition to our basic cellular services, we also offer a broad range of value added telecommunications and information services. In August 2001, we introduced a platform of integrated cellular value added services under the brand name “emome”. In addition, we are launching other value added services, such as JAVA games, unstructured supplementary service data and multimedia messaging services. We expect to commence our third generation cellular services in the first half of 2004.

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      Internet. Our key objectives are to provide high speed Internet access, a variety of innovative Internet content and high quality and value added services. We will continue to focus on increasing the penetration of asymmetrical digital subscriber line services, and upgrading the bandwidth for our asymmetrical digital subscriber line services. In addition, we also plan to expand our fiber-to-the-building services. Our advanced network contains sufficient bandwidth to allow us to provide, subject to necessary government approvals, multimedia on demand and videophone services.

      We plan to continue using our advanced digital network to provide high quality transmission and value added services with competitive pricing. We also plan to continue focusing on business customers in order to capture a significant share of the increasing corporate demand for data communications services.

      We have made significant investments in information technology and plan to continue using our extensive customer database to expand our revenue base. For example, we have introduced single-billing services for our customers, which will facilitate the bundling and cross-selling of our products and services in these markets.

Anticipate future demand for services by further enhancing our network technology and capacity

      We expect demand for Internet, multimedia and other high bandwidth data applications to continue to increase significantly over the next several years. We believe that an advanced broadband network is essential to providing high quality, reliable and timely services. In anticipation of this demand, we will continue to devote a substantial portion of our capital expenditures towards construction of broadband and Internet protocol networks. In addition, with the proliferation of non-voice communication, we are also transforming our existing networks to support the Internet protocol.

  Expand our business through alliances and investments

      We plan to expand our business into high growth areas, such as interactive multimedia broadband services, content delivery services and value added services, through alliances and investments. We believe that our experience, operational scale and large subscriber base make us an attractive partner for other service providers.

      Strategic alliances. We have formed and will continue aggressively to pursue strategic alliances with information content providers, multimedia service platform providers and customer premises equipment providers to diversify our business operations and enhance our service offerings.

      Investments. In the past years, we have invested in several telecom-related businesses authorized by the Ministry of Transportation and Communications. One of them is Chunghwa Investment Co. Ltd., which was established in 2002 to spearhead our investment activities. Chunghwa Investment Co. Ltd. has invested in two companies, including Chunghwa Telecom Global Incorporation, which primarily focuses on international business opportunities, and Chunghwa System Integration Co. Ltd., which offers system integration and content value-added services.

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Our Principal Lines of Business

      The following table sets forth our revenues from our principal lines of business for the periods indicated.

																			Three months ended
							Six months				Year ended December 31,								March 31,
			Year ended				ended
			June 30,				December 31,
			2000				2000				2001				2002				2002				2003
																			(unaudited)
			(in billions of NT$, except percentages)
Fixed line
	Local			61.9	33.4	%		30.4	32.0	%		56.5	30.6	%		51.8	28.9	%		12.7	29.3	%		12.0	27.1	%
	Domestic long distance			25.7	13.9			12.3	13.0			18.0	9.8			14.0	7.8			3.5	8.1			3.3	7.4
	International long distance			30.7	16.6			12.8	13.5			20.6	11.2			15.7	8.7			3.5	8.1			3.8	8.7
		Total fixed line		118.3	63.9			55.5	58.5			95.1	51.6			81.5	45.4			19.7	45.5			19.1	43.2
Wireless
	Cellular			42.2	22.8			25.1	26.4			56.7	30.7			62.9	35.1			15.1	35.0			16.0	36.1
	Paging			3.1	1.7			1.0	1.1			1.3	0.7			1.1	0.6			0.3	0.7			0.2	0.4
		Total wireless		45.3	24.5			26.1	27.5			58.0	31.4			64.0	35.7			15.4	35.7			16.2	36.5
Internet and data:
	Internet			7.7	4.2			5.9	6.2			15.2	8.2			20.8	11.6			4.8	11.2			6.1	13.9
	Data			11.8	6.4			6.4	6.7			13.6	7.4			10.4	5.8			2.8	6.4			2.4	5.4
		Total Internet and data		19.5	10.6			12.3	12.9			28.8	15.6			31.2	17.4			7.6	17.6			8.5	19.3
Other				1.9	1.0			1.1	1.1			2.5	1.4			2.7	1.5			0.5	1.2			0.4	1.0
		Total revenues		185.0	100.0			95.0	100.0			184.4	100.0			179.4	100.0			43.2	100.0			44.2	100.0

Fixed Line

      Fixed line services are our principal business activity. We are the largest provider of local, domestic long distance and international long distance telephone services in Taiwan. We also provide interconnection with our fixed line network to other cellular and fixed line operators. Since June 2001, three operators have begun offering fixed line services. Our revenues from fixed line services were NT$118.3 billion, or 63.9% of our revenues, for the year ended June 30, 2000, NT$55.5 billion, or 58.5% of our revenues, for the six months ended December 31, 2000, NT$95.1 billion, or 51.6% of our revenues, for the year ended December 31, 2001, NT$81.5 billion (US$2.3 billion), or 45.4% of our revenues, for the year ended December 31, 2002 and NT$19.1 billion (US$549.4 million), or 43.2% of our revenues, for the three months ended March 31, 2003. We expect that revenues from our fixed line business, which currently account for less than 50% of our total revenues, will continue to decline as a percentage of our total revenues.

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  Local Telephone

      The following table sets forth our revenues from local telephone services for the periods indicated.

											Three months
					Six months		Year ended				ended
			Year ended		ended		December 31,				March 31,
			June 30,		December 31,
			2000		2000		2001		2002		2002		2003
											(unaudited)
			(in billions of NT$)
Local telephone revenues:
	Usage			28.2		14.1		25.3		20.8		5.1		4.5
	Subscription			18.0		9.0		17.8		17.6		4.4		4.4
	Interconnection			3.7		1.9		2.9		3.4		0.8		0.9
	Pay telephone			2.2		0.7		1.1		0.8		0.2		0.2
	Other			9.8		4.7		9.4		9.2		2.2		2.0
		Total		61.9		30.4		56.5		51.8		12.7		12.0

      We provide local telephone services to over 13.0 million subscribers in Taiwan. Our fixed line network reaches virtually all homes and businesses in Taiwan. Revenues from local telephone services comprised 33.4% of our revenues for the year ended June 30, 2000, 32.0% of our revenues for the six months ended December 31, 2000, 30.6% of our revenues, for the year ended December 31, 2001, 28.9% of our revenues for the year ended December 31, 2002 and 27.1% of our revenues for the three months ended March 31, 2003. Approximately 75.4% of our local telephone subscribers as of March 31, 2003 were residential customers, accounting for 69% of our local telephone revenues for the three months ended March 31, 2003. We are currently the leader of the local telephone service market, with an average market share of 99% in the three months ended March 31, 2003.

      The following table sets forth information with respect to our local telephone subscribers and penetration rates as of the dates indicated.

						As of									As of
			As of			December 31,									March 31,
			June 30,
			2000			2000			2001			2002			2002			2003
			(in thousands, except percentages and per household data)
Taiwan population				22,173			22,277			22,406			22,521			22,430			22,540
Fixed line subscribers:
	Residential			9,092			9,392			9,608			9,774			9,666			9,812
	Business			3,220			3,250			3,219			3,204			3,211			3,202
		Total		12,312			12,642			12,827			12,978			12,877			13,014
Growth rate (compared to the same period in the prior year)				5.1	%		N/A			4.2	%		1.2	%		N/A			1.1	%
Penetration rate (as a percentage of the population)				55.5	%		56.7	%		57.2	%		57.6	%		57.4	%		57.7	%
Lines in service per household				1.38			1.41			1.41			1.41			1.42			1.41

      Demand for local subscriber lines has been driven by population growth. In 2000, increased demand for multiple access lines also contributed to the increase in local subscriber lines. During 2001 and 2002, however, fixed line subscriber growth slowed down compared to prior periods, primarily due to the introduction of asymmetrical digital subscriber line services, which reduced the need for multiple access lines.

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      The following table sets forth information with respect to local telephone usage for the periods indicated.

													Three months
				Six months			Year ended						ended
	Year ended			ended			December 31,						March 31,
	June 30,			December 31,
	2000			2000			2001			2002			2002		2003
	(in millions, except percentages)
Minutes from local calls(1)(2)		48,007			25,867			45,825			34,255			8,920		7,357
Growth rate (compared to the same period in the prior year)		5.6	%		9.6	%		(4.5	)%(3)		(25.2	)%		N/A		(17.5	)%

(1)	Includes minutes from local calls made on pay telephones.
(2)	Calls to our HiNet service, which are recorded as part of our Internet and data services, are not included in our local call minutes or revenues.
(3)	Compared to the year ended June 30, 2000.

      Minutes from local calls have declined as non-HiNet narrowband subscribers migrate to broadband Internet services, which do not require dial-up telephone access. This decline was also due to traffic migration to cellular services. The economic slowdown in Taiwan also contributed to the decline in minutes from local calls. We expect the minutes from local calls to continue to decline for the same reasons.

      We charge our local telephone service subscribers a monthly fee, a usage fee and fees for some value added services. The monthly fees for our primary tariff plans are NT$70 with an NT$25 deductible on usage fees for residential customers and NT$295 for business customers. Our primary peak time usage fee is NT$1.6 per three minutes or NT$2.7 per ten minutes, depending on the tariff plan selected by the subscriber, and our off peak usage fee is NT$1.0 per ten minutes. Our usage fees are the same for residential and business customers. We adjusted our local tariffs in April 1997, April 2000 and January 2001.

      The following table sets forth information with respect to the average local usage charge per minute as of the dates indicated.

				Six months			Year ended						Three months ended
	Year ended			ended			December 31,						March 31,
	June 30,			December 31,
	2000			2000			2001			2002			2002		2003
Average local telephone usage fee (per minute)	NT$	0.63		NT$	0.57		NT$	0.58		NT$	0.63		NT$	0.60	NT$	0.64
Growth rate (compared to the same period in the prior year)		(10.0	)%		(13.6	)%		(7.9	)%(1)		8.6	%		N/A		6.7	%

(1)  Compared to the year ended June 30, 2000.

      Average per minute usage charges experienced an increase from NT$0.60 per minute for the three months ended March 31, 2002 to NT$0.64 per minute for the three months ended March 31, 2003, and an increase from NT$0.58 per minute for the year ended December 31, 2001 to NT$0.63 per minute for the year ended December 31, 2002. This increase was due to a decline in demand for our discounted Internet tariff packages as a result of a migration of non-HiNet dial-up subscribers to our asymmetrical digital subscriber line services.

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      Part of our competitive strategy is to offer customers innovative products and services intended to both secure customer loyalty and enhance revenues. Our value added services are designed to increase the number of calls our customers make and increase our call revenues. These services include call waiting, caller identification, call forwarding, three party call and voicemail.

  Domestic Long Distance Telephone

      We provide domestic long distance telephone services in Taiwan. Revenues from domestic long distance services comprised approximately 13.9% of our revenues for the year ended June 30, 2000, approximately 13.0% of our revenues for the six months ended December 31, 2000, 9.8% of our revenues for the year ended December 31, 2001, approximately 7.8% of our revenues for the year ended December 31, 2002 and approximately 7.4% of our revenues for the three months ended March 31, 2003. Our average market share for the three-month period ended March 31, 2003 was 88% in the domestic long distance market. Residential customers generated approximately 60% of our domestic long distance revenues for the three months ended March 31, 2003.

      The following table sets forth information with respect to usage of our domestic long distance telephone services for the periods indicated.

				Six months			Year ended						Three months ended
	Year ended			ended			December 31,						March 31,
	June 30,			December 31,
	2000			2000			2001			2002			2002		2003
	(in millions, except percentages)
Minutes from domestic long distance calls		9,714			4,460			7,890			6,832			1,705		1,518
Growth rate (compared to the same period in the prior year)		(8.4	)%		(12.0)	%		(18.8	)%(1)		(13.4	)%		N/A		(11.0)	%

(1)  Compared to the year ended June 30, 2000.

      Minutes of use for domestic long distance calls have declined due to the traffic migration to cellular services. In addition, usage of our domestic long distance telephone services was also adversely affected by competition from other fixed line operators. We expect the rate of decline in terms of minutes of use for fixed line services to continue in the future due to a combination of increased migration of traffic volume to cellular services and increased competition from new fixed line services.

      The following table sets forth information with respect to the average domestic long distance usage charge per minute for the periods indicated:

				Six months			Year ended						Three months ended
	Year ended			ended			December 31,						March 31,
	June 30,			December 31,
	2000			2000			2001			2002			2002		2003
Average domestic long distance usage charge (per minute)	NT$	2.13		NT$	2.22		NT$	1.79		NT$	1.63		NT$	1.60	NT$	1.63
Growth rate (compared to the same period in the prior year)		(24.7	)%		3.3	%		(16.0	)%(1)		(8.9	)%		N/A		1.9	%

(1)  Compared to the year ended June 30, 2000.

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      All domestic long distance calls, regardless of the distance between the calling parties, have the same tariff. We changed the unit of billing from a per-minute basis to a per-second basis. As a result, our average domestic long distance usage charge per minute has declined. In addition, we reduced our peak hour domestic long distance rate in April 2001 from NT$0.045 per second to our current rate of NT$0.035 per second. Our current domestic long distance usage rate during off peak hours is NT$0.025 per second, which is the same for residential and business customers.

      We provide intelligent network services over our domestic long distance network, including toll free calling, universal number, televoting, calling card service, premium rate service and virtual private networks. We also focus on offering our customers an increasing number of value added services and flexible tariff packages.

  International Long Distance Telephone

      We provide international long distance telephone services in Taiwan. Revenues from international long distance telephone services comprised approximately 16.6% of our revenues for the year ended June 30, 2000, approximately 13.5% of our revenues for the six months ended December 31, 2000, approximately 11.2% of our revenues for the year ended December 31, 2001, approximately 8.7% of our revenues for the year ended December 31, 2002 and approximately 8.7% of our revenues for the three months ended March 31, 2003. Residential customers generated 47% of our international long distance revenues during the three months ended March 31, 2003. In addition, beginning in January 2001, we also provide wholesale international long distance services to international simple resellers who do not possess their own telephone network or infrastructure.

      We believe other fixed line operators consider international long distance market to be their primary focus. Our average market share for the three-month period ended March 31, 2003 was 59% of the international long distance market. We expect competition in this market segment to remain intense, and our market share is likely to further decline as a result.

      Our international long distance services consist primarily of international direct dial services and discounted “Super eCall” services, which we introduced in April 2000. Under Super eCall, we use voice over Internet protocol technology through international dedicated circuits which connect to our major correspondent carriers that route calls internationally. Super eCall customers are offered rates that are approximately 30% lower than those for international direct dial service. For the three months ended March 31, 2003, calls made over Super eCall represented approximately 17.8% of our total international traffic.

      We commenced the wholesale of international long distance minutes to licensed international resale operators and other international carriers in 2001. International resale operators, which require a fixed line operator in Taiwan to complete their long distance telephone services originating in Taiwan, purchase large amounts of minutes from us at a discounted rate. These international resale operators, as well as other international carriers, often find it less expensive to route international calls through Taiwan, and purchase from us large numbers of minutes at discounted rates. Our international long distance wholesale business has grown rapidly since its introduction. In 2002, we sold 190.4 million of wholesale outgoing minutes, which represented 13.9% of our international long distance minutes. In the three months ended March 31, 2003, we sold 116.9 million wholesale outgoing minutes, which represented 27.7% of our international long distance minutes. As the international long distance market becomes more competitive, we believe the wholesale business will allow us

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to generate incremental international minutes without accelerating the decline in international long distance rates in the more profitable retail segment.

      During the three months ended March 31, 2003, international calls to and from our top five destinations represented approximately 63.9% of our international long distance call traffic.

      The following table shows the percentage of total outgoing and incoming international long distance minutes for our top five destinations for the three months ended March 31, 2003.

	Percentage of total			Percentage of total
Destination	outgoing minutes			incoming minutes
Mainland China		28.5	%		34.3	%
United States		10.8			15.0
Hong Kong		11.0			7.9
Japan		4.9			8.4
Philippines		7.0			1.4
Total of top five destinations		62.2	%		67.0	%

      The following table sets forth information with respect to usage of our international long distance services for the periods indicated.

													Three months
				Six months			Year ended						ended
	Year ended			ended			December 31,						March 31,
	June 30,			December 31,
	2000			2000			2001			2002			2002		2003
	(in millions, except percentages and incoming/outgoing ratio)
Incoming minutes		974			520			1,094			976			220		286
Growth rate (compared to the previous fiscal year)		24.1	%		7.4	%		12.3	%(1)		(10.8	)%		N/A		30.0	%
Outgoing minutes		1,008			555			1,330			1,423			281		422
Growth rate (compared to the same period in the prior year)		12.2	%		10.1	%		31.9	%(1)		7.0	%		N/A		50.2	%
Total minutes		1,982			1,075			2,424			2,399			501		708
Incoming/ outgoing ratio		0.97			0.94			0.82			0.69			0.78		0.68

(1)  Compared to the year ended June 30, 2000.

      Growth in outgoing international call usage decreased significantly in 2002, primarily due to increased competition from other fixed line operators. This decrease was offset in part by the increase in the wholesale of international long distance minutes. Our incoming call volume for the year ended December 31, 2002 significantly decreased as a result of competition from other operators.

      Outgoing calls made by customers in Taiwan and by customers from foreign destinations using Taiwan direct service are billed in accordance with our international long distance rate schedule for the destination called. Rates vary depending on the time of day at which a call is placed. Customers are billed on a per minute basis for Super eCall services, whereas customers are billed on a six second unit basis for international direct dial services.

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      The following table sets forth information with respect to the average international long distance usage charge per minute that we received for outgoing international calls during the periods indicated:

				Six months			Year ended						Three months ended
	Year ended			ended			December 31,						March 31,
	June 30,			December 31,
	2000			2000			2001			2002			2002		2003
Average international long distance usage charge (per minute)	NT$	22.7		NT$	19.4		NT$	11.9		NT$	7.9		NT$	8.9	NT$	6.8
Growth rate (compared to the same period in the prior year)		(12.4	)%		(16.0	)%		(47.6	)%(1)		(33.6	)%		N/A		(23.6	)%

(1)  Compared to the year ended June 30, 2000.

      Tariffs for international long distance calls have generally been declining worldwide and we expect this trend to continue. We do not expect the increase in international call traffic to fully offset the decline in tariffs. In anticipation of new competition, we substantially reduced our international tariffs by an average of 37% in April 2001 to defend our business and market share. In addition, we offered our customers significant promotional packages and discounts in 2001 and 2002 to maintain their loyalty. In particular, we increased the discounts offered to our high usage international long distance customers in 2001 and 2002.

      We pay for the use of networks of carriers in foreign destinations for outgoing international calls and receive payments from foreign carriers for the use of our network for incoming international calls. Traditionally, these payments have been made pursuant to settlement arrangements under the general auspices of the International Telecommunications Union. Settlement payments are generally denominated in U.S. dollars and are made on a net basis.

      The following table sets forth information with respect to our gross settlement receipts and payments during the periods indicated.

									Three
									months
			Six months		Year ended				ended
	Year ended		ended		December 31,				March 31,
	June 30,		December 31,
	2000		2000		2001		2002		2002		2003
	(in billions of NT$)
Gross international settlement receipts		7.3		2.0		4.6		4.2		1.0		0.9
Gross international settlement payments		8.5		3.7		8.0		6.6		1.4		1.5

      Since 2000, our payments on an aggregate basis to international carriers have been more than our receipts from these carriers. This was primarily due to our customers’ outgoing minutes exceeding incoming minutes. As international settlement rates have fallen, our international long distance revenues and our cost of providing international long distance services have declined.

      In order to compete more effectively in the international long distance market, we have implemented innovative and customized discount calling plans and marketing campaigns directed at high usage business customers. We also continue to promote our intelligent network services, including international virtual private networks, international toll free calling and calling card services, and our international long distance wholesale business.

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Wireless Services

      We provide cellular and paging services to customers in Taiwan. In the year ended June 30, 2000, we generated revenues of NT$45.3 billion, or approximately 24.5% of our revenues, from wireless services. In the six months ended December 30, 2000, we generated revenues of NT$26.1 billion, or approximately 27.5% of our revenues, from wireless services. For the year ended December 31, 2001, we generated revenues of NT$58.0 billion, or approximately 31.4% of our revenues, from wireless services. For the year ended December 31, 2002, we generated revenues of NT$64.0 billion (US$1.8 billion), or approximately 35.7% of our revenues, from wireless services. For the three months ended March 31, 2003, we generated revenues of NT$16.2 billion (US$464.6 million), or approximately 36.5% of our revenues, from wireless services.

      The following table sets forth our revenues from wireless services for the periods indicated.

											Three
											months
					Six months		Year ended				ended
			Year ended		ended		December 31,				March 31,
			June 30,		December 31,
			2000		2000		2001		2002		2002		2003
											(unaudited)
			(in billions of NT$)
Wireless revenues:
	Cellular			42.2		25.1		56.7		62.9		15.1		16.0
	Paging			3.1		1.0		1.3		1.1		0.3		0.2
		Total wireless		45.3		26.1		58.0		64.0		15.4		16.2

  Cellular Services

      The following table sets forth our revenues from cellular services for the periods indicated.

											Three
											months
					Six months		Year ended				ended
			Year ended		ended		December 31,				March 31,
			June 30,		December 31,
			2000		2000		2001		2002		2002		2003
											(unaudited)
			(in billions of NT$)
Cellular revenues:
	Usage(1)			39.3		23.2		51.7		55.9		13.5		13.9
	Interconnection			1.8		1.3		3.3		4.2		0.9		1.2
	Mobile data			—		0.1		0.9		1.3		0.3		0.4
	Other			1.1		0.5		0.8		1.5		0.4		0.5
		Total cellular		42.2		25.1		56.7		62.9		15.1		16.0

(1)  Includes monthly fees.

      As the market for cellular services has continued to expand, we have experienced substantial growth in our cellular customer base. We are the largest cellular operator in Taiwan in terms of revenues and number of subscribers. We had 7.6 million cellular subscribers, a market share of approximately 30.8% of total cellular subscribers and approximately 34.8% of total cellular services revenues in Taiwan as of March 31, 2003.

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Revenues from cellular services comprised approximately 22.8% of our revenues for the year ended June 30, 2000, approximately 26.4% of our revenues for the six months ended December 31, 2000, approximately 30.7% of our revenues for the year ended December 31, 2001, approximately 35.1% of our revenues for the year ended December 31, 2002 and approximately 36.1% of our revenues for the three months ended March 31, 2003.

      We offer digital cellular service through our dual band global system for mobile communications network. We are one of four national licensed providers of global system for mobile communications services. We have been allocated 15 MHz in the 900 MHz frequency band and 11.25 MHz in the 1800 MHz frequency band for global systems for mobile communications services and general packet-switched radio services and 15 MHz paired spectrum plus 5 MHz unpaired spectrum in the 2 GHz frequency band for third generation cellular services. This is the largest frequency spectrum allocation of any cellular operator in Taiwan. We also offer the largest international roaming network. In particular, our subscribers have access to 249 networks in 121 countries through our roaming network. Since December 2001, we discontinued offering analog cellular service through our advanced mobile phone service, and returned the spectrum allocation in the 800 MHz frequency band to the government. All subscribers to this service have switched to our global system for mobile communications network.

      As of March 31, 2003, our global system for mobile communications 900/ 1800 network comprised 7,400 base stations covering 99.9% of Taiwan’s population. We began providing our general packet-switched radio service network in August 2001. General packet-switched radio service technology offers our subscribers high speed data transmission, thereby enabling the delivery of multimedia applications.

      In February 2002, the Ministry of Transportation and Communication granted third generation cellular services concessions to five companies, including our company. In March 2002, we paid NT$10.2 billion to the government for our concession. We expect to launch our third generation cellular telephone services with widened code division multiple access technology in the first half of 2004.

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      The following table sets forth information regarding our cellular service operations and our cellular subscriber base for the periods indicated.

					As of or for
		As of or for			the			As of or for the years						As of or for the three
		the year			six months			ended						months
		ended			ended			December 31,						ended March 31,
		June 30,			December 31,
		2000			2000			2001			2002			2002			2003
Taiwan population (in thousands)			22,173			22,277			22,406			22,521			22,430			22,540
Total cellular subscribers in Taiwan (in thousands)(1)			14,683			17,874			21,633			23,905			22,423			24,738
Penetration (as a percentage of the population)			66.2	%		80.2	%		96.6	%		106.1	%		100.0	%		109.8	%
Total cellular revenues in Taiwan (in billions)			N/A		NT$	82.9		NT$	170.7		NT$	179.4			NT$43.3		NT$	45.4
Number of our cellular subscribers (in thousands)(1)(2)			3,832			4,662			6,234			7,422			6,537			7,620
Our market share by subscribers(1)			26.1	%		26.1	%		28.8	%		31.0	%		29.2	%		30.8	%
Our market share by revenues						30.1	%		33.3	%		34.8	%		34.5	%		34.8	%
Number of our prepaid subscribers (in thousands)			—			96			757			1,216			875			1,268
Our prepaid subscribers as a percentage of our total subscribers			—			2.1	%		12.1	%		16.4	%		13.4	%		16.6	%
Annualized churn rate(3)			20.5	%		20.2	%		16.1	%		18.8	%		15.1	%		18.6	%
Minutes of usage (in millions of minutes):
	Incoming		4,371			2,686			6,639			8,043			1,947			2,011
	Outgoing		3,921			2,525			6,161			6,960			1,650			1,806
Average minutes of usage per cellular subscriber per month(1)(4)			211			204			196			183			188			169
Average revenue per cellular subscriber per month(1)(5)		NT$	1,074			NT$983			NT$867			NT$768			NT$789			NT$707

(1)	The number of cellular subscribers is based on the number of subscriber identification module cards.
(2)	Includes general systems for mobile communication, general packet-switched radio services and advanced mobile phone services.
(3)	Measures the rate of subscriber disconnections from cellular service, determined by dividing (A) the sum of voluntary and involuntary deactivations (excluding deactivations due to subscribers switching from one of our cellular services to another) during the relevant period by (B) the average number of subscribers during the period (calculated by averaging the number of subscribers at the beginning of the period and the end of the period), and multiplying the result by the fraction where (C) the numerator is 12 and (D) the denominator is the number of months in that period.
(4)	Average minutes of usage per cellular subscriber per month is calculated by dividing the total minutes of usage during the period by the average of the number of our cellular subscribers on the first and last days of the period and dividing the result by the number of months in the relevant period.

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(5)  Average revenue per subscriber per month is calculated by dividing the sum of cellular telecommunications services revenue during the relevant period by the average of the number of our cellular subscribers on the first and last days of the period and dividing the results by the number of months in the relevant period.

      The cellular market in Taiwan has grown rapidly since the liberalization of the market in 1997. Total cellular subscribers in Taiwan reached approximately 25 million as of March 31, 2003. Cellular penetration was 109.8% on the same date, and is among the highest worldwide. We expect cellular penetration to grow at a slower rate in the future. We believe that this future growth will depend upon continuing improvements in wireless technologies and wireless data applications and the availability of advanced cellular handsets.

      We began offering prepaid card services in October 2000. As of March 31, 2003, we had approximately 1.3 million prepaid customers representing approximately 16.6% of our total cellular subscribers. We expect to maintain prepaid subscribers as a percentage of total cellular subscribers at approximately the current level in the near future. Prepaid customers do not pay monthly fees but pay a higher usage charge on a per second basis. Once the prepayment has been fully utilized, a prepaid customer can make additional prepayments to continue the services. Alternatively, the customer may convert to become a post-paid customer while retaining the same telephone number.

      We offer handset subsidies to new subscribers that agree to sign a two-year contract with us, and to existing subscribers who renew their contracts with us for a period of two years. As of March 31, 2003, the average handset subsidy we offered was approximately NT$2,300 per subscriber. We expect the level of our average handset subsidy to remain at a similar level for the foreseable future. We generally offer subsidies on handsets equipped with more advanced data functions to promote the expansion of our general packet-switched radio services and future third generation cellular services.

      Traffic growth has also been strong, as pricing has declined and subscribers have increased. We have also experienced a significant increase in the number of short text messages sent by our subscribers, which has had a positive impact on traffic volume. However, the average minutes of usage per subscriber have declined in the year ended December 31, 2002 and the three months ended March 31, 2003 because of an increase in our prepaid customers, who tend to have lower minutes of usage, and an increased usage of our short messaging services. We expect traffic volume to increase as newer applications and new services become more available.

      Our tariffs for post-paid cellular subscribers primarily consist of usage fees and monthly fees. When our subscribers are outside Taiwan, they pay roaming charges plus international long distance charges and, where applicable, local charges in roaming destinations. We charge a flat fee per transaction for our short messaging service and a fee per packet for our general packet-switched radio service based on the volume of data transmitted. We also offer discounts on usage fees for calls made between our cellular subscribers to encourage subscription to our cellular service.

      Intense competition has caused increased price pressure. Our average revenue per subscriber per month has gradually declined. This decrease was primarily due to: (1) low usage subscribers accounting for a larger proportion of our new cellular subscribers as a result of the increasing saturation of the cellular services market in Taiwan; and (2) an increase in our prepaid subscribers, which tend to generate lower revenues compared to post-paid subscribers. In order to stabilize average revenue per subscriber, we intend to continue introducing new value added services in order to generate additional sources of revenue.

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      In addition to our basic cellular services, we also offer a broad range of value added telecommunications and information services. We introduced in August 2001 a platform of integrated cellular value added services under the brand name “emome”. “emome” offers a broad range of value added services, including financial information, transaction services, emergency services access numbers, directory information, time, weather and traffic reports. In addition, we are launching other cellular value added services, such as JAVA games, unstructured supplementary service data and multimedia messaging services. We believe these services enhance customer loyalty and satisfaction and increase traffic.

  Paging Services

      We offer nationwide and regional paging services in Taiwan. In addition to traditional paging services, we offer a broad range of wireless information services, including stock quotes on our “InterMessenger” service, weather information, news and agricultural information. We had approximately 194,000 paging subscribers as of March 31, 2003.

      Revenues from paging services comprised approximately 1.7% of our revenues for the year ended June 30, 2000, approximately 1.1% of our revenues for the six months ended December 31, 2000, approximately 0.7% of our revenues for the year ended December 31, 2001, approximately 0.6% of our revenues for the year ended December 31, 2002 and approximately 0.4% of our revenues for the three months ended March 31, 2003. As cellular usage has increased, we have seen a sharp reduction in the number of our paging subscribers. We expect the number of our paging subscribers to continue to decline.

Internet and Data Services

      We have experienced strong growth in our Internet and data services. Our Internet and data revenues represented approximately 10.6% of our revenues for the year ended June 30, 2000, approximately 12.9% of our revenues for the six months ended December 31, 2000, approximately 15.6% of our revenues for the year ended December 31, 2001, approximately 17.4% of our revenues for the year ended December 31, 2002 and approximately 19.3% of our revenues for the three months ended March 31, 2003. We provide:

•  Internet services, including HiNet, our Internet service provider, asymetrical digital subscriber line Internet access, Internet value added services and wireless local area networks; and

•  Data services, including leased line services, managed data services and Internet data center services.

											Three
											months
					Six months		Year ended				ended
			Year ended		ended		December 31,				March 31,
			June 30,		December 31,
			2000		2000		2001		2002		2002		2003
											(unaudited)
			(in billions of NT$)
Internet and data revenues:
	Internet			7.7		5.9		15.2		20.8		4.8		6.1
	Data			11.8		6.4		13.6		10.4		2.8		2.4
		Total Internet and data		19.5		12.3		28.8		31.2		7.6		8.5

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  Internet Services

     HiNet and Internet Access

      The following table sets forth our revenues from Internet services for the periods indicated.

			Six months		Year ended				Three months
			ended		December 31,				ended March 31,
			December 31,
			2000		2001		2002		2002		2003
									(unaudited)
			(in billions of NT$)
Internet revenues:
	Narrowband access			2.3		3.7		2.6		0.8		0.4
	Narrowband Internet service			2.1		3.8		1.9		0.7		0.3
	Broadband access			0.3		3.5		9.0		1.8		3.1
	Broadband Internet service			0.3		2.6		5.5		1.2		1.8
	Other Internet			0.9		1.6		1.8		0.3		0.5
		Total Internet		5.9		15.2		20.8		4.8		6.1

      We are the largest Internet service provider in Taiwan, with a 42% market share as of March 31, 2003. As of March 31, 2003, HiNet had approximately 3.4 million subscribers, and our subscribers increased by a 32.4% compound annual growth rate over the past two and a half years ended December 31, 2002.

      The following table sets forth HiNet’s subscribers as of each of the dates indicated:

			As of			As of December 31,									As of March 31,
			June 30,
			2000			2000			2001			2002			2002			2003
			(in thousands except percentages)
Total Internet access subscribers in Taiwan				3,806			4,650			6,232			7,454			6,979			8,130
HiNet subscribers
	HiNet dial-up subscribers			1,625			2,009			2,044			1,936			2,016			1,884
	HiNet asymmetrical digital subscriber line subscribers			11			75			675			1,352			836			1,490
	Other access technology subscribers			9			19			29			31			32			30
		Total HiNet subscribers		1,645			2,103			2,748			3,319			2,884			3,404
Market share(1)				43	%		45	%		44	%		45	%		41	%		42	%

(1)  Based on data provided by the Institute for Information Industry.

      We have maintained our leading market position despite a highly competitive market with over 170 Internet service providers in Taiwan. We expect the competitive conditions currently prevailing in the Taiwan Internet service provider market to continue. In particular, we expect an increasing number of other Internet service providers to offer free Internet access service in order to capture market share.

      Customers can access HiNet through various technologies. We provide narrowband dial-up Internet access through connections based on standard telephone modems. We provide broadband Internet access through connections based on asymmetrical digital subscriber lines and our fiber-to-the-building technology. As of March 31, 2003, approximately 43.8%, or 1.5 million, of our HiNet subscribers access the Internet through our asymmetrical digital subscriber lines.

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      We are the largest broadband Internet access provider in Taiwan in terms of subscribers. We began providing our asymmetrical digital subscriber line service in August 1999 and we had approximately 1.9 million subscribers as of March 31, 2003, representing an approximately 82% share of Taiwan’s broadband market. Our asymmetrical digital subscriber line service allows for transmission of data at high access rates and offers high-speed broadband Internet access services. It also provides asymmetrical digital subscriber line service to other Internet service providers that do not have their own network infrastructure.

      The following table sets forth our asymmetrical digital subscriber line service
subscribers as of each of the dates indicated.

									As of
	As of		As of December 31,						March 31,
	June 30,
	2000		2000		2001		2002		2002		2003
Our asymmetrical digital subscriber line service subscribers (in thousands)		16		99		857		1,683		1,047		1,860

      Our asymmetrical digital subscriber lines service offers downlink speeds that range from 512 Kilobits per second to 6.0 Megabits per second and uplink speeds that range from 64 Kilobits per second to 640 Kilobits per second. In December 2001, we began providing symmetrical digital service line with uplink and downlink speeds of 512 kilobits.

      We have experienced only limited competition in the asymmetrical digital subscriber line service market because other fixed line operators and cable operators have not established a nationwide network infrastructure to provide this service.

      Our revenues from providing Internet access are generated from installation fees, monthly subscription fees and from usage fees from fixed line telephone calls made to access HiNet. Usage fees from fixed line telephone calls made to access Internet service providers other than HiNet are recorded as local fixed line revenues.

      Charges for our HiNet dial-up service include a monthly fee entitling the subscriber to a fixed number of minutes of service, with an additional charge per minute when the fixed number of minutes are exceeded. However, we also offer our subscribers an unlimited number of minutes for a monthly fee. Charges for our asymmetrical digital subscriber line service include one-time installation charges and monthly subscription fees. These charges vary based on connection speed.

      The following table sets forth our average revenues per user for each of the periods indicated:

							Three months
	Six months		Year ended				ended
	ended		December 31,				March 31,
	December 31,
	2000		2001		2002		2002		2003
							(unaudited)
	(in NT$)
Average revenue per HiNet dial-up subscriber per month(1)		401		311		192		237		122
Average revenue per asymmetrical digital subscriber line subscriber per month(2)		2,064		1,180		1,039		1,167		1,003

(1)  Average revenue per HiNet dial-up subscriber per month is calculated by dividing the total local telephone usage revenues generated by HiNet dial-up subscribers and Internet access

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revenues by the average of the number of our HiNet dial-up subscribers on the first and last days of the period and dividing the result by the number of months in the relevant period.

(2)

Average revenue per asymmetrical digital subscriber line service subscriber per month is calculated as the sum of (a) asymmetrical digital subscriber line access revenue divided by the average of the number of our asymmetrical digital subscriber line service subscribers on the first and last days of the period and dividing the result by the number of months in the relevant period and (b) HiNet asymmetrical digital subscriber line Internet Service Provider revenue divided by the average of the number of HiNet asymmetrical digital subscriber line subscribers on the first and last days of the period and dividing the result by the number of months in the relevant period.

      Our average revenues per user have declined over the last three years due to increasing competition. We expect our average revenue per user for broadband services to stabilize, however, as subscribers migrate towards more expensive, higher bandwidth digital subscriber line services.

     Internet Value Added Services

      Our HiNet portal at www.hinet.net provides value added services to our subscribers, such as gaming, e-learning, financial information and links to other portals. We charge fees for some of these services. We also receive commissions for transactions completed on some of these portals. Our broadband Internet portal at www.HiChannel.com.tw offers online entertainment services through the Internet. In particular, our HiNet asymmetrical digital subscriber line customers can access music, television programs, movies and other multi-media content on demand. We charge access fees for some of this content. We expect the revenues generated from these value added services to grow as a percentage of our total Internet and data services revenues.

     Wireless Local Area Network Service

      In order to increase our customers’ ability to enjoy mobile Internet access, we launched our wireless local area network service in May 2002. As of March 31, 2003, we had a total of approximately 14,900 residential and business customers that lease our access points. In addition, we have established 10 hotspots in public areas, such as airports and international convention centers. We expect the revenues generated from our wireless local area network services to continue to grow.

  Data Services

      The following table sets forth our revenues from data services for the periods indicated.

					Six months		Year ended				Three months
			Year ended		ended		December 31,				ended March 31,
			June 30,		December 31,
			2000		2000		2001		2002		2002		2003
											(unaudited)
			(in billions of NT$)
Data revenues:
	Leased line			10.5		5.6		11.6		8.4		2.3		1.9
	Other			1.3		0.8		2.0		2.0		0.5		0.5
		Total data		11.8		6.4		13.6		10.4		2.8		2.4

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     Leased Line Services

      We are the leading provider of domestic leased line services in Taiwan. We are also a leading provider of overseas leased line services. Leased line services involve offering exclusive lines that allow point-to-point connection for voice and data traffic. Leased lines are used by business customers to assemble their own private networks and by telecommunications service providers to establish networks to offer telecommunications services.

      We provide data transmission services to major business customers in Taiwan. We also provide leased lines to other cellular and fixed line service operators for interconnection with our fixed line network and for connection within their networks. Since August 2001, licenses have been awarded to four undersea cable operators to engage in leased line services. Demand for high speed data transmission services has been growing rapidly, as a result of growing consumer demand and lower tariffs due to increased competition. In particular, the total bandwidth of our lines leased increased by 288% over the past two and a half years ended December 31, 2002, but decreased slightly in the three months ended March 31, 2003 due to the termination of three high bandwidth leased lines.

      The following table shows the bandwidth of lines leased to third parties as of each of the dates indicated.

	As of		As of December 31,						As of March 31,
	June 30,
	2000		2000		2001		2002		2002		2003
	(in gigabits per second)
Total bandwidth		53.8		71.4		122.7		208.7		152.9		207.1

      Rental fees for local leased lines are generally based on transmission speed while domestic long distance and international long distance leased line rental fees are based on transmission speed and distance.

      We continue to experience a decline in rental fees for all of our leased line products. The decline in rental fees since 2000 has been substantial, particularly for international leased lines partly as a result of our efforts to address competition from new international leased line service providers. We are actively implementing marketing and service campaigns to retain our high value business customers, and believe that rental fees are expected to decline further.

     Managed Data Services

      We provide a wide range of managed data services, including frame relay services, asynchronous transfer mode services and virtual private network services. Frame relay services provide high speed data communications linking remote sites. Asynchronous transfer mode services are used to handle high bandwidth, integrated voice, video, data and Internet traffic between sites.

     Internet Data Center Services

      Internet data centers are facilities providing the physical environment necessary to keep computer network servers running at all times. These facilities are custom designed with high volume air conditioning temperature control systems, secure access, reliable electricity supply and connections to high bandwidth Internet and data networks. Data centers house, protect and maintain network server computers that store and deliver Internet and other network content, such as web pages, applications and data.

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      We currently have 10 Internet data centers in Taiwan. We offer co-location, web hosting and application service provider services.

Other Telecommunications Services

      We also provide other telecommunications services, including satellite services, telephone directories and billing handling services. In the year ended June 30, 2000, we generated revenues of NT$1.9 billion, or approximately 1.0% of our revenues, from these other telecommunications services. For the six months ended December 31, 2000, we generated revenues of NT$1.1 billion, or approximately 1.1% of our revenues, from these other telecommunications services. For the year ended December 31, 2001, we generated NT$2.5 billion, or approximately 1.4% of our revenues, from these other telecommunications services. For the year ended December 31, 2002, we generated NT$2.7 billion (US$77.7 million), or approximately 1.5% of our revenues, from these other telecommunications services. For the three months ended March 31, 2003, we generated NT$0.4 billion (US$12.2 million), or approximately 1.0% of our revenues, from other telecommunications services.

  Satellite Services

      We are a 50% owner of the ST-1 telecommunications satellite. Singapore Telecommunications Ltd. owns the remaining 50%. ST-1 was launched on August 26, 1998 and began commercial operations on December 1, 1998. We lease out transponder capacity on ST-1 and provide satellite lease circuits. In addition, we have two satellite communication centers that enable us to provide satellite value added services. We also provide satellite services to Mainland China and South East Asia.

  Telephone Directories

      We publish and distribute telephone directories to households and businesses in Taiwan. Our yearly circulation is currently approximately 6.7 million directories. We also provide web based directories through our hiPage and eYP brands. We have developed a range of Internet products and services based on our directory products. Our revenues from directories are derived from the sale of advertising space in directories, including advertising on hiPage, our Internet telephone directory service.

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  Interconnection

      We provide interconnection of our fixed line network with other cellular services network operators and, since July 2001, with other fixed line operators.

      The following table sets forth our interconnection fee revenues and costs for the periods indicated. These revenues and costs are included in, depending on the nature of the call made, local, domestic long distance services or cellular revenues and expenses, respectively.

				Six months		Year ended				Three months
		Year ended		ended		December 31,				ended March 31,
		June 30,		December 31,
		2000		2000		2001		2002		2002		2003
										(unaudited)
		(in billions of NT$)
Interconnection fee revenues:
	Local		3.7		1.9		2.9		3.4		0.8		0.9
	Domestic long distance		3.6		1.7		2.7		1.7		0.5		0.5
	Cellular		1.8		1.3		3.3		4.2		0.9		1.2
Interconnection costs:
	Fixed Line		0.0		0.0		0.0		0.9		0.0		0.2
	Cellular		1.8		1.3		3.4		4.0		1.0		1.0

      Currently, tariffs for telephone calls between our fixed line subscribers and cellular subscribers of other cellular operators are set by the cellular operators. The cellular operators pay us interconnection fees based on minutes of usage, regardless of who initiated the call. The Directorate General of Telecommunications is currently considering a change to the regulation that will allow us to set and collect the tariffs for telephone calls made by our fixed line subscribers to cellular subscribers of other cellular operators. For such calls, cellular operators will no longer pay us interconnection fees, but we will be required to pay them termination charges.

      In the interim, starting from August 2001, the Directorate General of Telecommunications has approved the interconnection rate of NT$0.60 per minute for calls initiated by cellular subscribers, and NT$0.824 per minute for calls initiated by fixed line subscribers. In addition, we have applied to The Directorate General of Telecommunications to increase the interconnection rate for calls initiated by our fixed line subscribers to cellular subscribers. The interconnection rate between our fixed line subscribers and other fixed line subscribers is approximately NT$0.40 per minute. The interconnection rate between our cellular subscribers and other cellular subscribers is approximately NT$1.9 per minute.

      All interconnections by the networks of cellular operators and other fixed line operators with our fixed line network are made through dedicated lines that these operators lease from us. We record the revenue for these leased lines as part of our Internet and data revenues.

      We expect an increase in interconnection revenue due to an increase in traffic between different fixed line networks as a result of the competition from other fixed line operators.

      In accordance with governmental regulations, the contracts governing our interconnection arrangements must specifically address a number of prescribed issues. For example, our interconnection charge should reflect our cost with respect to the network elements used. In addition, cost increases are subject to approval by the regulatory authorities. We expect that our interconnection contracts will generally be reviewed annually, although we may also enter into long term contracts.

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Marketing, Sales and Distribution

  Marketing Strategy

      In order to retain and expand our large customer base and to encourage our customers to increase their use of our services and products, we plan to focus our marketing strategy on the following areas.

•  Services and Products. We continually develop new value added services and products, and package our services and products based on different market segments, with the aim of increasing our high usage customers.

•  Pricing and Promotions. We design flexible promotional packages that allow customers to select tariff structures best tailored to their usage patterns, and design special promotional packages during holiday seasons. For example, we have provided handset subsidies to attract cellular subscribers.

•  Distribution Channels. We are facilitating customer subscription by adding more service points. In addition, we are broadening our distribution reach by strengthening our cross-industry alliances and marketing relationships. We are also expanding our sales channels by implementing a sales agent system. We have developed staff incentive programs to better motivate our sales staff.

•  Business Customers. We have expanded our customer focus to include small and medium enterprises in addition to large corporations. We serve the needs of large corporate customers by devoting a project manager or project engineer to service these customers. These account managers are responsible for developing customized solutions and tariff packages to meet the specific needs of our customers. We continually evolve our service offerings so that we can remain a one stop telecommunications services provider to our corporate customers and provide total telecommunications solutions. Our dedicated local teams serve the needs of small and medium enterprises. These teams also use our data bank to identify and target potential clients for promoting our e-commerce and cellular services. In addition, we help our corporate customers improve their efficiency and competitiveness by creating information systems for them.

•  Advertising. We are committed to further strengthening the Chunghwa Telecom brand and image as well as strengthening and expanding market recognition of our specialized product brands, such as HiNet and emome. We plan to leverage our leading market position and status to strengthen the overall advantage of our product brands.

  Sales and Distribution

      Our marketing department at our corporate headquarters in Taipei is responsible for central business planning and formulating our marketing strategies and objectives. We have six business divisions, each of which has its own marketing department that is responsible for business and marketing planning.

      We also have 31 operations offices and 265 service centers located throughout Taiwan that are responsible for operations, sales and customer services in their local areas.

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  Customer Service and Billing

      We believe our reputation for quality customer service has helped us attract new customers and maintain customer loyalty. We regularly survey our customers to improve our service and better understand market demand and subscriber preferences, and develop products and services accordingly.

      We provide the following services to our customers:

•  24-hour customer service and technical support through our service centers, call centers and website;

•  free of charge itemized billing for international and domestic long-distance calls;

•  bill payment services at 24-hour convenience stores, bank service counters and service centers throughout Taiwan;

•  online information and bill payment services at our website, cht.com.tw; and

•  consolidated and automized billing for all services.

Network Infrastructure

      Our network infrastructure consists of transmission networks that convey voice and data traffic, switching networks that route traffic between networks, and cellular, paging, Internet, leased line and data switching networks.

      We purchase most of our network equipment from well known international suppliers. As part of the purchase contract, these suppliers deliver and install the equipment for us. We also purchase from local suppliers a variety of components such as transmission lines, switches, telephone sets and radio transmitters.

      Approximately 14,800 of our employees were engaged in network infrastructure development, maintenance, operation and planning as of March 31, 2003.

Internet Protocol Broadband Backbone Network

      Our Internet protocol broadband backbone network consists of a core network and an edge network. We completed the construction of our super high speed Internet protocol backbone network at the end of 2001 with six 320 gigabits per second giga switching routers for the core network and more than 45 of the same routers for the edge network.

      We believe this network would enable us to meet the increasing demand for broadband access and broadband multimedia services, and provides the backbone network for our future third generation cellular services network. It would also enable us to provide voice over Internet protocol services using our existing public switched telephone network.

      We expect to launch our multimedia on demand service in the Taipei metropolitan area by the end of the second quarter of 2003, subject to obtaining the necessary government approvals. We intend to utilize our existing Internet protocol broadband backbone and asymmetrical digital subscriber line service bandwidth to deliver this service. We expect this system to have an initial capacity that is sufficient to accommodate approximately 20,000 subscribers.

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Transmission Networks

      As of March 31, 2003, our transmission networks consisted of approximately 767,000 fiber kilometers of fiber optic cable for trunking and 694,000 fiber kilometers of fiber optic cable for local loop.

      In the past three years, we have made significant progress in the upgrading of our plesiochronous digital hierarchy network transmission facilities to synchronous digital hierarchy network transmission facilities. Plesiochronous digital hierarchy is the traditional technology for voice network transmission systems. Synchronous digital hierarchy architecture is an advanced technology that allows for instantaneous rerouting and eliminates downtime in the event of a fiber cut. In addition, synchronous digital hierarchy offers better reliability and performance for optical fiber transmissions at a lower operating cost. We installed, in December 2002, synchronous transport module 64 multiplexer and 10 gigabit capacity 32l-wavelength dense wavelength division multiplexing equipment on our long-haul backbone network. Our synchronous transport module 64 multiplexer can multiplex several low speed signals into a 10 gigabit per second high speed signal. Dense wavelength division multiplexing equipment uses a technology that puts data from different sources together on an optical fiber with each signal carried on its own separate wavelength. Both synchronous transport module 64 multiplexer and dense wavelength division multiplexing equipment can increase our network capacity. Furthermore, we expect to complete the deployment of twenty 2.5 gigabit capacity 32l-wavelength optical add-drop multiplexer rings in the main metropolitan areas of Taipei, Taichung and Kaohsiung by the end of June 2003, in order to provide new services such as gigabit Ethernet and fiber channel.

      As part of our strategic focus on the Internet and data markets, our local loop connections use asymmetrical digital subscriber line technology. This enables us to deliver to our customers high speed Internet, multimedia and other data services. As of March 31, 2003, approximately 99.2% of our installed telephone lines are capable of delivering asymmetrical digital subscriber line services.

Switching Networks

      Domestic telecommunications network. Our domestic public switched telephone network consists of 14 message areas connected by a long distance network. As of March 31, 2003, we had 59 long distance exchanges which are interconnection points between our telecommunications network.

      We currently have intelligent networks installed over our public switched telephone networks for our domestic long distance and international networks, as well as a local intelligent network in the Taipei, Taichung and Kaohsiung metropolitan areas. Our intelligent network is designed to facilitate the use of value added services by providing more information about calls and greater management of those calls.

      As of March 31, 2003, our domestic network included 17.4 million installed telephone lines, and reached virtually all homes and businesses in Taiwan.

      International network. Our international transmission infrastructure consists of both submarine cable and satellite transmission systems, which link our national network directly to 94 telecommunications service providers in 63 international destinations.

      International calls are routed between Taiwan and international destinations through one of our two international switching centers, one located in Taipei and the other in Kaohsiung. Each center had two international gateway switches with a combined simultaneous call capacity of 159,594 as of March 31, 2003.

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      We currently have invested in 38 submarine cables, eight of which land in Taiwan. Our aggregate total capacity in the undersea cables in which we have invested is 31 gigabits per second. We also own the right to use bandwidth on an additional 12 submarine cables.

Cellular Services Network

      Our cellular services network consists of:

•  cell sites, which are physical locations equipped with a base station consisting of transmitters, receivers and other equipment used to communicate through radio channels with subscribers’ cellular telephone handsets within the range of a cell;

•  base station controllers, which connect to, and control, the base station within each cell site;

•  mobile switching centers, which control the base station controllers and the processing and routing of telephone calls;

•  gateway general packet-switched radio service support nodes, which connects our general packet-switched radio service network to the Internet;

•  serving general packet-switched radio service support nodes, which connects the general packet-switched radio service network to the base station controllers; and

•  transmission lines, which link (1) with respect to the global system for mobile communications network, the mobile switching centers, base station controllers, base stations and the public switched telephone network, and (2) with respect to the general packet-switched radio service network, the base station controllers, the support nodes and the Internet.

      The following table sets forth selected information regarding our cellular networks as of the dates indicated.

		As of			As of December 31,									As of March 31,
		June 30,
		2000			2000			2001			2002			2002			2003
Global system for mobile communications
	Base stations		3,081			3,545			5,322			7,402			5,547			7,617
	Switches		30			36			42			54			42			54
	Lines of capacity (in thousands)		4,160			5,000			6,200			8,000			7,500			8,200
	Taiwan population coverage		99.4	%		99.6	%		99.8	%		99.9	%		99.8	%		99.9	%
	Taiwan geographical coverage		79.1	%		80.5	%		85.0	%		89.0	%		85.0	%		89.1	%
General packet-switched radio service
	Gateway support nodes		—			—			25			25			25			25
	Serving support nodes		—			—			20			20			20			20
	System capacity (in thousands)		—			—			1,000			1,000			1,000			1,000

      We provide cellular services based on the global system for mobile communications network standards. We have dual band 900 MHz and 1800 MHz frequency spectrums for our global system for mobile communications services. In addition, we have installed an intelligent network on our cellular services network infrastructure to enable us to provide prepaid services as well as a wide range of advanced call features and value added services. We have also installed wireless application protocol gateways on our cellular services network that enable us to provide wireless application protocol services. We began

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providing cellular communications services based on the general packet-switched radio service network standards in August 2001, using emome as the portal name.

      As our prepaid service subscriber base has continued to grow, we have increased the capacity of our intelligent network to more than 1.2 million subscribers. We also have completed the system expansion of our cellular services network to afford more than 8 million subscribers (including 1 million general packet-switched radio service subscribers) at the end of 2002. We have general packet-switched radio services and 15 MHz paired spectrum plus 5 MHz unpaired spectrum in the 2 GHz frequency band for our third generation cellular services. In preparation for the launch of third generation cellular services, we contracted with Nokia Corporation to provide the core network, radio access network, service network, transmission network and maintenance network. We expect to launch our third generation cellular services in the first half of 2004.

Paging Network

      The primary components of our paging network are:

•  paging control systems, which receive and encode incoming messages; and

•  base stations, which transmit messages to the subscriber’s pager.

      Our paging network uses, among other technologies, the open paging protocol developed by Motorola. This technology provides higher data rate, larger content capacity, longer battery life and better error correction capabilities than other existing paging technologies.

Internet Network

      HiNet, our Internet service provider, has the largest Internet access network in Taiwan, with 33 points of presence, 86,000 dial-up ports and a backbone bandwidth of 47 gigabits per second as of March 31, 2003. We plan to increase HiNet’s points of presence and backbone bandwidth to 120 gigabits per second by the end of 2003. We intend to maintain a dial-up user to port ratio of 15 to 1 to ensure quality service and maintain market share.

      HiNet’s total international connection bandwidth is 5.4 gigabits per second. As we expect that Internet traffic flows to and from the United States will continue to increase, we plan to expand our bandwidth to the United States. We also plan to increase our links to other countries, including Japan, Korea, Hong Kong, Singapore, Mainland China, Malaysia and France.

Leased Line and Data Switching Networks

      We operate leased line networks on both a managed and unmanaged basis. In addition, we operate a number of switched digital networks used principally for the provision of packet-switched, frame relay and asynchronous transfer mode data transmission services. We have completed the construction of a digital cross connect system throughout Taiwan with a total of 56 nodes. As of March 31, 2003, we had 4,604 frame relay ports, 5,805 synchronous transport module-1 ports and 7,705 X.25 ports.

      Our data networks support a variety of transmission technologies, including X.25 protocol and frame relay technology. In addition, our asynchronous transfer mode network permits high-speed data transmission, while our asynchronous transfer mode switches perform high-speed switching of voice and data traffic using fixed-length packets technology, thereby minimizing time delay and congestion. Furthermore, our asynchronous transfer

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mode switches can prioritize applications based on their time sensitivity. As of March 31, 2003, we have completed installation of more than 11,000 synchronous transport module-1 ports in Taiwan.

Competition

      We face competition in virtually all aspects of our business. For a detailed description of the regulation of the Taiwan telecommunications industry, see the section in this prospectus entitled “Regulation” beginning on page 110.

Fixed Line

      We are the largest fixed line service provider in Taiwan, with a market share of 99% for local telephone services, 88% for domestic long distance telephone services and 59% for international long distance telephone services, in terms of subscribers, for the three months ended March 31, 2003. Three new providers, namely, Taiwan Fixed Network, New Century Infocomm Tech. Co., Ltd. and Eastern Broadband Telecom Co. Ltd., have begun providing fixed line services since June 2001. We believe the new operators are primarily focused on international long distance services. In addition, we anticipate these new operators to focus on business customers, which typically generate higher profit margins than residential customers. Since August 2001, four undersea cable services licenses have been granted. These undersea cable operators have begun offering international leased line services to other fixed line operators. In addition, the Directorate General of Telecommunications has announced its intention to issue additional fixed line licenses.

      We are required by Republic of China regulations to provide number portability and unbundled local loop access. See “Regulation” beginning on page 110 for more details.

      Our domestic long distance services compete with cellular services as people increasingly use cellular telephones to make domestic long distance calls. In addition, our international long distance services compete with international long distance resale services and alternative mediums for making international calls, including voice over Internet protocol technologies. Our competitors may also seek alliances with Taiwan Power Co. Ltd. and Taiwan Railway Administration to use their infrastructure to deliver telecommunications services. We believe that the fixed line competition in Taiwan will be primarily based on price, quality of service, network coverage and customer services, such as call centers and unified billing.

Wireless

      There are currently six cellular operators in Taiwan. They include four national operators, namely Taiwan Cellular Corporation, Far EasTone Telecommunications Co., Ltd., KG Telecommunications and our company. Based on data provided by the Directorate General of Telecommunications, as of March 31, 2003, we were the largest cellular operator, with a 30.8% market share in terms of subscribers, and Taiwan Cellular Corporation, Far EasTone Telecommunications Co., Ltd. and KG Telecommunications had a market share of 26.8%, 17.7% and 13.5%, respectively, in terms of subscribers. In addition, based on data provided by the Directorate General of Telecommunications, two regional operators, MobiTai Communications Co., Ltd. and Trans Asia Telecommunications Inc., had a market share of 2.9% and 8.3%, respectively, in terms of subscribers, as of March 31, 2003. Trans Asia Telecommunications Inc. was acquired by Taiwan Cellular Corporation in July 2001. In addition, there are two new third generation cellular operators in Taiwan, Taiwan 3G Mobile Network and Asia Pacific Broadband Wireless Communications Inc., as well as one personal

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handphone system operator, First International Telecom. Furthermore, the government has announced its intention to issue mobile virtual network operator licenses, which allow operators without spectrum to provide cellular services through leasing the capacity and facilities of cellular service network from licensed cellular service provider. We compete in the wireless services market primarily on the bases of price, quality of service, network reliability and attractiveness of service packages.

Internet and Data

      Our primary competitors in Internet and data services include:

•  Internet services providers: SeedNet, Asia Pacific Online, GigaMedia and So-net Taiwan;

•  Broadband Internet access: Eastern Broadband Telecom Co., Ltd., GigaMedia, Taiwan Fixed Network and New Century Infocomm Tech. Co., Ltd.; and

•  Leased line services: Taiwan Fixed Network, New Century Infocomm Tech. Co., Ltd., Eastern Broadband Telecom, Asia Netcom, Reach Global Services Ltd., FLAG Telecom and Taiwan International Gateway Corporation.

      We are the largest provider of Internet services in Taiwan. As of March 31, 2003, we had a 42% share of the Internet service market in terms of subscribers and a 82% share of the broadband Internet access market in terms of subscribers. We compete in the Internet and data services market primarily on the bases of price, technology, speed of transmission, amount of bandwidth available for use, network coverage and value added services.

Research and Development

      Our research and development efforts are focused on the development of advanced network services and operation technologies as well as the development of core technologies for the domestic telecommunications market. For the year ended June 30, 2000, our research and development expenses excluding depreciation and amortization were approximately NT$2.7 billion or 1.5% of our revenues. For the six months ended December 31, 2000, our research and development expenses excluding depreciation and amortization were approximately NT$1.3 billion or 1.4% of our revenues. For the years ended December 31, 2001 and 2002, our research and development expenses excluding depreciation and amortization were approximately NT$2.8 billion and NT$2.4 billion (US$70 million), respectively, or 1.5% and 1.4% of our revenues, respectively. For the three months ended March 31, 2002 and 2003, our research and development expenses excluding depreciation and amortization were approximately NT$547 million and NT$603 million (US$17 million), respectively, or approximately 1.3% and 1.4% of our revenues, respectively.

      We currently have more than 1,200 researchers focusing on the following areas:

•  wireless communication;

•  broadband transmission and access;

•  Internet and multimedia applications;

•  network operation support;

•  customer service information;

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•  advanced technologies research; and

•  customer premises equipment.

      We have developed a number of advanced network services, operation technologies and applications and value added services, including our asymmetrical digital subscriber line deployment, Internet-based call center, e-commerce platform, global standard for mobile communications billing system, a new telecommunications operation service system for all units of our company, government public key infrastructure, a leased line testing and monitoring system and an intelligent transportation system. As of March 31, 2003, we have been granted 134 domestic patents and 11 foreign patents.

Properties

      Our properties consist mainly of land, land improvements and buildings located throughout Taiwan.

      Our properties were deemed by the cabinet of the government of the Republic of China, or the Executive Yuan, to be vested in us as the successor to the telecommunications business formerly owned and operated by the Directorate General of Telecommunications. Under Republic of China law, we are required to register our title to the land, land improvements and buildings at the relevant local land bureaus. As of March 31, 2003, we had not completed title registration for approximately 2% of our land and 1% of our land improvements and buildings.

Insurance

      We do not carry comprehensive insurance for all properties. We maintain in-transit insurance for key materials, such as cables, equipment and components of equipment. We also carry insurance for the ST-1 satellite while it is in orbit.

      As part of our efforts to enhance our risk management capabilities, we have been assessing our equipment that requires the most time and cost to repair or replace, in order to determine whether and to what extent we should carry fire insurance for such equipment. In addition, we expect to begin carrying insurance for equipment that is located in areas that are subject to a high risk of earthquakes or floods.

      We expect to commence insurance coverage of the equipment described in the preceding paragraph by 2005.

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Employees

      All of our employees are located in Taiwan and all are employed on a full time basis. As of March 31, 2003, approximately 62.5% of our employees had university, graduate or post-graduate degrees. We intend to improve our operational efficiency by reducing personnel costs. We offered a number of voluntary retirement programs between June 1, 2000 and December 31, 2001, which resulted in a reduction in our workforce of 6,480 employees, or approximately 20% of our total workforce before the implementations of these voluntary retirement programs. According to our internal preliminary estimate, based on our employees’ years of service, age and related retirement regulations, more than 5,000 of our employees may choose to retire upon the completion of our privatization.

		As of December 31,						As of
								March 31,
Employees		2000		2001		2002		2003
Technical			21,463		19,203		15,888		15,943
Operations			10,596		9,971		11,090		11,137
Administrative			2,648		2,247		1,991		1,993
	Total		34,707		31,421		28,969		29,073

      The Ministry of Transportation and Communications has adopted a regulation that requires us to establish a priority share subscription program for our employees in connection with our privatization. Under this program, our employees may subscribe on a priority basis for up to 476,858,252 of our common shares to be offered by the Ministry of Transportation and Communications in one or more offerings prior to our privatization. As long as our employees agree not to transfer these shares for two or three years, they receive a discount of 10% or 20%, respectively, to the offering price. As of the date of this prospectus, 52,071,319 of our common shares, representing 0.54% of our outstanding common shares, were sold under this program. In addition, our employees will be entitled to purchase a small amount of additional common shares at their par value per share of NT$10, if these employees had subscribed for shares under our priority share subscription program and held those shares for at least one year. As of the date of this prospectus, the Ministry of Transportation and Communications had sold 502,926 of our common shares to our employees at par value, representing less than 0.1% of our outstanding common shares. At the time that we are privatized, the Ministry of Transportation and Communications may allocate up to an additional 476,858,252 common shares for a one-time subscription by our employees.

      Under the Statute of Chunghwa Telecom Co., Ltd. and our articles of incorporation, whenever we issue new shares for cash, we need to reserve up to 10% of the new shares to be issued for subscription by our employees.

      As of March 31, 2003, approximately 99% of our employees were members of our principal labor union. Our collective bargaining agreement sets forth work rules, grievance procedures and provides for union participation in performance evaluations and promotion decisions. Our union members also occupy a majority of the seats on our employee welfare and pension fund committees.

      We have successfully addressed the concerns over job security raised by our labor union during the initial stages of our privatization process, see “Risk Factors — Risks Relating to Our Company and the Taiwan Telecommunications Industry” on page 6. We consider our relations with our workers to be good. We have never experienced a work stoppage or a general strike. We intend to implement a performance based pay structure to better incentivize our employees.

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      Before we may distribute dividends to our shareholders, commencing from the first fiscal year after our privatization, we are required by our articles of incorporation to distribute to our employees and to our directors and supervisors specified percentages of the distributable amount as bonuses. See “Description of Share Capital — Dividends and Distributions” beginning on page 135.

Our Pension Plans

      We maintain two separate non-contributory defined benefit pension plans, which provide retirement benefits based on years of service and monthly salary. As mandated by a governmental directive in 1997, we are required to make severance payments to all employees at the date of our privatization in the following manner:

•  employees who choose not to continue their employment with us will be entitled to receive pension benefits prescribed under the Labor Standards Law, plus a six-month salary and an additional one-month salary with prior notice; and

•  employees who choose to continue their employment with us will be entitled only to receive pension benefits prescribed under the Labor Standards Law.

      In order to increase our operational efficiency, we established, and expect to continue to establish, retirement programs to encourage some of our employees to retire prior to our privatization. Under these programs, employees choosing to retire prior to our privatization will be compensated based on years of service and monthly salary. Compensation obligations under some of these programs are expected to be assumed by the government after the completion of our privatization. We expect to fund all compensation costs of these early retirements with our pension plan funds.

      After our privatization is completed, our employees will begin new employment terms with us from the date of our privatization with the same starting point of seniority. We will then establish a new pension plan for employees retiring after our privatization. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Provisions for pension payments to our employees” beginning on page 28.

Legal Proceedings

      We are not involved in any litigation, arbitration or administrative proceedings relating to claims that could have a material adverse effect on our financial condition and results of operations, and, so far as we are aware, no such litigation, arbitration or administrative proceedings are pending or threatened.

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REGULATION

      The following is a summary of the significant laws and regulations of the Republic of China relating to us. Unless otherwise specified, all the laws and regulations referred to herein are laws and regulations of the Republic of China and all the government authorities referred to herein are the government authorities of the Republic of China.

Overview

      The Taiwan telecommunications industry is subject to extensive regulation by and under the supervision of the Ministry of Transportation and Communications and the Directorate General of Telecommunications pursuant to the provisions of the Telecommunications Act and various other telecommunications laws and regulations, as well as regulations under various laws of general application.

      As a state owned enterprise, we are also regulated by the Law Governing Administration of State Owned Enterprises, the Audit Law and the Budget Law. We are also subject to the Statute Governing Privatization of State Owned Enterprises.

      In addition, we are subject to the Statute of Chunghwa Telecom Co., Ltd.

Regulatory Authorities

      The primary regulatory authority of the Taiwan telecommunications industry is the Ministry of Transportation and Communications. The Ministry of Transportation and Communications issues policy directives and telecommunications licenses and oversees the activities of the Directorate General of Telecommunications, which is responsible for the implementation of these directives and the day-to-day supervision of the telecommunications industry. The Ministry of Transportation and Communications and the Directorate General of Telecommunications are responsible for:

•  formulating, implementing and interpreting telecommunications laws and regulations;

•  issuing telecommunications licenses and regulating the operation of telecommunications industry participants;

•  establishing and reviewing tariff structures and numbering plans; and

•  managing and facilitating the resolution of disputes pertaining to the Taiwan telecommunications industry.

      The operations of cable television enterprises are regulated by the news and broadcasting division of the Government Information Office under the Executive Yuan. Internet access through cable is regulated by the Directorate General of Telecommunications.

      In each fiscal year, the Legislative Yuan approves the annual budget prepared by us, as a state owned enterprise, and the Ministry of Audit under the Control Yuan must audit and may adjust, our financial statements, including our earnings and losses.

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Telecommunications Act

      The Telecommunications Act and the regulations under the Telecommunications Act establish the framework and govern the various aspects of the Taiwan telecommunications industry, including:

•  licensing of telecommunications services;

•  restrictions on dominant telecommunications service providers;

•  tariff control and price cap regulation;

•  accounting separation system;

•  interconnection arrangements;

•  bottleneck facilities;

•  spectrum allocation;

•  provision of universal services;

•  equal access;

•  number portability;

•  foreign ownership limitations; and

•  administration fees.

      Each of these aspects is described below. The Telecommunications Act also establishes a non-auction pricing system for assignment of radio frequencies.

Licensing of Telecommunications Services

Type I and Type II Service Providers

      Under the Telecommunications Act, telecommunications service providers are classified into two categories:

      Type I. Type I service providers are providers that install network infrastructure, such as network transmission, switching and auxiliary equipment for the provision of telecommunications services. Type I services include fixed line services such as local, domestic long distance and international long distance services, as well as interconnection, leased line, asymmetrical digital subscriber line and satellite services and wireless services such as cellular, including third generation cellular, paging, mobile data and trunked radio services.

      Type II. Type II service providers are defined as all telecommunications service providers other than Type I service providers. Type II services are divided into special services and general services. Special services include simple resale, voice over Internet protocol, international leased circuit and other services specified by the Ministry of Transportation and Communications. General services include any Type II service other than special services.

      Until 1996, we were the sole provider of Type I services in Taiwan. In 1996, the government opened the market for cellular, paging and trunked radio, mobile data and digital low power cordless telephone services. In 1998, the government opened the market for fixed line and mobile satellite services. In June 2001, the government granted licenses to three operators for establishing fixed line services, thereby opening the market for fixed line

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services. Since August 2000, the government has permitted four undersea cable operators to engage in the undersea cable leased-circuit business.

Granting of Licenses

Type I

      Type I service providers are more closely regulated than Type II service providers. The government has broad powers to limit the number of providers and their business scope and to ensure that they meet their facilities roll-out obligations. Under the Telecommunications Act, Type I service providers are subject to pre-licensing merit review of their business plans and tariff rates.

      Licenses for Type I services are granted by the Ministry of Transportation and Communications through a three-step procedure. Applicants must first obtain a concession from the Ministry of Transportation and Communications. After obtaining a concession, the applicant must obtain a network construction permit and an assignment of spectrum in the case of cellular telephone services and satellite services, from the Directorate General of Telecommunications or the Ministry of Transportation and Communications prior to applying for a license. Upon completion of construction of its network and review by the Directorate General of Telecommunications, the applicant may be granted a Type I license. The Ministry of Transportation and Communications has the authority to grant Type I licenses for each of fixed line services, wireless services and satellite services. Type I licenses have different minimum paid-in capital requirements for applicants and varying durations depending on the particular type of service.

      The Telecommunications Act further authorizes the Ministry of Transportation and Communications to promulgate separate regulations governing each Type I service including the business scope of the Type I service provider, as well as the procedures and conditions for granting special permits and the length of the period of the special permits of each Type I service. Each holder of a Type I license will pay a fee ranging from 0.5% to 2% of the annual revenues generated from the particular Type I service for which a license has been granted.

      Fixed Line Services. Under the Telecommunications Act, the Fixed Network Regulations adopted by the Ministry of Transportation and Communications govern the issuance of fixed line service licenses and the business scope of fixed line providers. Fixed line service licenses are subdivided into the following categories:

•  integrated services, including local, domestic long distance, international long-distance telephone services;

•  local telephone services;

•  domestic long distance telephone services;

•  international long distance telephone services; and

•  local, domestic long distance and international long distance leased line services.

      We conduct our fixed line services through a license for integrated services.

      Licenses for local telephone and integrated services are valid for 25 years, licenses for domestic long distance and international long distance telephone services are valid for 20 years and licenses for leased line services are valid for 15 years. The minimum paid-in capital requirement for integrated services providers and international undersea cable service providers are NT$40 billion and NT$800 million, respectively.

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      In March 2000, the government granted three new concessions to fixed line services providers for integrated services. Recipients of these concessions are required to apply for a network construction permit to deploy broadband local access networks. Each recipient of these concessions is required to have capacity for 150,000 subscribers before they are able to apply for a fixed line license to launch their proposed services. The three fixed line services providers have since obtained fixed line licenses and are required to achieve capacity for one million subscribers by the sixth year following the date of the grant of the network construction permit awarded.

      Wireless Services. Under the Telecommunications Act, the Wireless Regulations adopted by the Ministry of Transportation and Communications govern the issuance of wireless services licenses and the business scope of wireless service providers. Wireless service licenses are subdivided into the following categories:

•  cellular services;

•  paging services;

•  mobile data services;

•  digital low-power cordless telephone services; and

•  trunked radio services.

      Wireless service licenses are granted to both regional and national service providers through review and bidding procedures.

      Wireless services licenses for cellular and paging services are valid for 15 years, and licenses for mobile data, digital low-power cordless telephone and trunked radio are valid for ten years. The minimum paid-in capital requirement for regional cellular service providers and national service providers are NT$1 billion and NT$6 billion, respectively.

      We are licensed to provide cellular and paging services in Taiwan.

      Third Generation Cellular Services. The Ministry of Transportation and Communications promulgated the Third Generation Mobile Telecommunications Services Regulations on October 15, 2001. These regulations govern voice and non-voice telecommunications services provided using the spectrum assigned by the Ministry of Transportation and Communications that utilizes the IMT-2000 technical standards as announced by the International Telecommunications Union.

      Licenses for third generation cellular services are granted by the Ministry of Transportation and Communications through a three-step procedure. Applicants must first obtain a concession from the Ministry of Transportation and Communications through a bidding process. The concession will be valid from the issue date to December 31, 2004. After obtaining the concession, the applicant must inject the minimum paid-in capital of NT$6 billion, amend its corporation registration and obtain a system and station installation permit to commence the construction of the third generation cellular services network infrastructure from the Directorate General of Telecommunications. After the completion of such construction and obtaining an approval from the Directorate General of Telecommunications, the applicant may apply for the third generation cellular services license. Each license is valid until December 31, 2018. If the applicant is unable to apply for and obtain a license before the expiry date of the concession, the applicant may apply for an extension of one year. We have obtained the system and station installation permit and are in the process of building our third generation cellular services network infrastructure.

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      Pursuant to the Third Generation Mobile Telecommunications Services Regulations, the Ministry of Transportation and Communications granted third generation cellular services concessions to five bidders, including our company, in February 2002.

      Satellite Services. Under the Telecommunications Act, the Satellite Regulations adopted by the Ministry of Transportation and Communications govern the issuance of satellite services licenses and the business scope of satellite service providers. Satellite services licenses are subdivided into fixed satellite services licenses and mobile satellite services licenses.

      Satellite services licenses are valid for 10 years. Minimum paid-in capital requirements for fixed satellite services providers and mobile satellite services providers are NT$100 million and NT$500 million, respectively.

      We currently hold a fixed satellite services license, valid from December 10, 1998 to December 9, 2008.

Type II

      The Telecommunications Act was amended in 1996 to open the market for all Type II services. Under Type II Services Regulations as amended on June 28, 2001, Type II services are divided into special services and general services. Special services include simple resale, voice over internet protocol, international leased circuit and other services specified by the Ministry of Transportation and Communications. General services include any Type II service other than special services. The policy for granting a Type II service license has the following characteristics:

•  there is no limit on the number of licenses to be issued;

•  licenses are granted by the Directorate General of Telecommunications; and

•  no bidding procedure is required.

      We hold a license to operate all Type II services. Type II service licenses are valid for ten years and may be renewed by application six months prior to the expiration date. There is no minimum paid-in capital requirement for Type II service providers. Our license to operate Type II services was issued on October 23, 2000. Prior to October 23, 2000, we conducted our Type II services pursuant to a letter from the Ministry of Transportation and Communications to the Directorate General of Telecommunications stating that we should be permitted to operate Type II services.

      On December 19, 2001, the Ministry of Transportation and Communications announced new regulations governing Type II licenses. Under the new regulations, operators of simple resale or voice over internet protocol services must pay an annual license fee equal to 0.5% of annual revenues generated from these services. Type II service operators providing services other than simple resale or voice over internet protocol services must pay license fees ranging from NT$6,000 to NT$90,000 depending on their paid-in capital. These new regulations do not apply to integrated services providers who also provide Type II services. The annual license fee for an integrated services provider operating Type II businesses is 1% of its annual revenues generated from its Type II services.

Restrictions on Dominant Telecommunications Services Providers

      Under the Telecommunications Act, the regulations governing dominant telecommunications services providers apply only to Type I service providers. A Type I service provider is

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deemed to be dominant if it meets any of the following criteria and is declared by the Ministry of Transportation and Communications as dominant:

(1)	controls key basic telecommunications infrastructure;
(2)	has dominant power over market price; or
(3)	has more than a 25% market share in terms of customers or revenues.

      We have been declared by the Ministry of Transportation and Communications as a dominant Type I service provider for fixed line and cellular services.

      Under the Telecommunications Act, a dominant Type I service provider must not engage in the following activities:

•  hinder a request for interconnection with its networks by other Type I service providers;

•  refuse to release to other Type I service providers the calculation methods of its interconnection fees and other relevant materials;

•  improperly determine, maintain or change its tariffs or means of services;

•  reject, without due cause, a request for leasing network components by other Type I service providers;

•  reject, without due cause, a request for leasing lines by other services providers;

•  reject, without due cause, a request for negotiation (including negotiation on co-location) or testing by other services providers;

•  discriminate, without due cause, against other services providers or users; or

•  abuse its position as a dominant provider, or engage in other unfair competition activities.

      In addition, a dominant Type I service provider is subject to special regulations limiting its tariff changes.

Tariff Control and Price Cap Regulation

      In order to promote competition in the telecommunications market, and as part of the government’s overall policy toward deregulation, the Telecommunications Act was amended in 1999 to abolish the former rate of return system on tariff setting in favor of price cap regulation of Type I services.

      Under the Regulations Governing Tariffs of Type I Service Providers promulgated by the Ministry of Transportation and Communications, a dominant Type I service provider must submit its proposed adjustment in primary tariffs and promotional packages for approval at least 14 days prior to the date of the proposed tariff changes and announce such changes seven days prior to their effectiveness. Such an announcement may be made during the 14-day Ministry of Transportation and Communications approval period.

      Primary tariffs include:

(1)	for fixed line local telephone services: monthly fees, usage fees, monthly rental fees of leased lines and pay telephone usage fees;
(2)	for fixed line domestic long distance telephone services: usage fees and monthly rental fees of leased lines;

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(3)	for fixed line international long distance telephone services: usage fees and monthly rental fees of leased lines;
(4)	for wireless services, including third generation cellular services: monthly rental fees and usage fees; and
(5)	other fees or tariffs announced by the Directorate General of Telecommunications.

      In comparison, all non-dominant Type I service providers are required to notify the Directorate General of Telecommunications and the public of their proposed tariff adjustments seven days prior to the date of the proposed tariff change with respect to all tariffs. In addition, changes in tariffs charged by Type I service providers (notwithstanding the type of their respective services) may not, in any event, be greater than the annual growth rate of the consumer price index in Taiwan adjusted by a set constant, which will be periodically determined and announced by the Directorate General of Telecommunications. For example, if:

(1)	the annual growth rate of the consumer price index in Taiwan minus the set constant is positive, the increased percentage of tariffs must not exceed such positive figure,
(2)	the annual growth rate of the consumer price index in Taiwan minus the set constant is negative, the decreased percentage of tariffs must be at least the absolute value of such negative figure, and the tariffs subsequently changed must not be higher than the tariff originally charged, and
(3)	the annual growth rate of the consumer price index in Taiwan minus the set constant equals to zero, no increase in tariffs is allowed to be made by any Type I service providers.

      In October 2000, the Directorate General of Telecommunications announced that effective from the date of the announcement, the set constant to be applied for all tariff adjustments, except tariffs for our fixed line local telephone services, will be equal to the annual growth rate of the consumer price index in Taiwan. Accordingly, for the time being, the adjustment would be equal to zero as calculated in (3) above and thus no increase in tariffs by Type I services providers will be allowed, except for increases in tariffs for fixed line local telephone services. The set constant to be applied for adjustments in fixed line local telephone services has yet to be announced by the Directorate General of Telecommunications.

      Type II service providers are free to establish their own tariff schemes, but are required to notify the Directorate General of Telecommunications and the public upon adoption and upon any subsequent adjustments.

Accounting Separation System

      The Telecommunications Act requires that a Type I service provider, including one who concurrently offers Type II services, separately calculate the profits and losses for its different services and prohibits any cross-subsidization among services that will impede fair competition.

Interconnection Arrangements

      The Telecommunications Act requires all Type I service providers to allow other Type I service providers access to their networks. It further requires Type I service providers, within three months upon request by the other Type I service provider, to reach an agreement on the relevant terms for the interconnection. Prices charged for interconnection must be based on cost. If the parties fail to reach an agreement within three months, the Directorate

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General of Telecommunications may arbitrate and determine the interconnection terms for the parties. According to the Administrative Rules for Network Interconnection Between Type I Service Providers, the tariffs for communications between a cellular telecommunications network and a fixed line telecommunications network shall be collected by the call-originating services provider from its subscribers pursuant to the tariff schedules set by the cellular services provider, and the revenue from such tariffs shall go to the cellular services provider.

      When a Type I service provider leases unbundled network components to another Type I service provider, the parties are required to negotiate the rental fee. Unbundled network components include:

(1)	local loops;
(2)	local switch transmission equipment;
(3)	local trunks;
(4)	toll switch transmission equipment;
(5)	long-distance trunks;
(6)	international switch transmission equipment;
(7)	network interfaces;
(8)	directory equipment and services; and
(9)	signaling network equipment.

      The Telecommunications Act authorizes the Directorate General of Telecommunications to issue rules and regulations pertaining to interconnection. Under the Administrative Rules for Network Interconnection between Type I Service Providers issued by the Directorate General of Telecommunications, we, as a dominant Type I service provider for fixed line and cellular services, are required to unbundle our network and provide cost-based interconnection charges calculated with reference to the total element long-run incremental cost incurred by us. We are required to submit our proposed calculations of the total element long-run incremental cost to the Directorate General of Telecommunications for its approval.

Bottleneck Facilities

      Under the Telecommunications Act, when a Type I service provider cannot construct bottleneck facilities within a reasonable period of time or substitute those facilities by other available technologies, it may request for co-location on a fee basis from the owner of the facilities located at the bottleneck of relevant telecommunications network. The owner of the facilities so requested may not reject these requests without due cause. The Ministry of Transportation and Communications has the authority to prescribe facilities as bottleneck facilities, and has prescribed bridges, tunnel, lead-in tubes and telecommunication chambers located within buildings and horizontal and vertical telecommunication cables and lines as bottleneck facilities in relation to fixed line telecommunication networks.

Spectrum Allocation

      The Ministry of Transportation and Communications allocates all telecommunications related frequencies primarily according to the standards set by the International Telecommunications Union. The 900 MHz and 1,800 MHz frequency bands have been allocated for cellular applications. A total of 40 MHz spectrum around the 800 MHz frequency band and a

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total of 130 MHz of spectrum around the 2 GHz band have been allocated for third generation cellular services.

      Frequency allocation for fixed wireless platforms, such as wireless local loop and local multipoint distribution services, has already been set. Only some bands of the spectrum made available for these services are completely clear and there is partial usage in all other bands. The cost of frequency usage will be based on quantity.

Provision of Universal Services

      A Type I service provider may be required by the Ministry of Transportation and Communications, under the Telecommunications Act, to provide universal telecommunications services in remote or unprofitable areas. All Type I service providers and certain Type II service providers designated by the Ministry of Transportation and Communications will be required to contribute a fixed portion of their annual revenues to a universal services fund. Such a fund will be used to compensate any losses and management fees incurred by the relevant Type I service provider in providing the universal services. In June 2001, the Ministry of Transportation and Communications promulgated the Regulations on Telecommunications Universal Services, pursuant to which Type I service providers are required to provide universal telecommunications services and contribute to the costs and expenses of providing such services on a pro rata basis according to their respective revenues.

Equal Access

      As a result of the liberalization of Taiwan’s telecommunications industry, a Type I service provider, including a third generation cellular services provider, is required to provide its subscribers with equal access to the domestic and international long distance telephone services provided by other services providers. A Type I service provider may provide equal access through pre-selection or call-by-call selection. Currently, all Type I service providers, including us, provide equal access only through call-by-call selection. When a subscriber makes a call using call-by-call selection, such subscriber has the option to select a service provider by dialing the network identification prefix assigned to the services provider of his choice. This will result in the automatic selection of the preferred services provider for the provision of relevant telecommunication services.

Number Portability

      The Ministry of Transportation and Communications has adopted principles on fixed line number portability that will enable customers to migrate their local and toll free fixed line telephone numbers. Under these regulations, we are required to provide fixed line number portability in seven major cities and counties in Taiwan upon the grant of the first fixed line license to a new entrant. We are also required to provide such number portability in other service areas no later than 181 days from the grant of such license and upon six months’ advanced written notification received from the new fixed line service provider. Since May 2002, fixed line number portability has been made available to all customers.

      According to the Third Generation Mobile Telecommunications Services Regulations, third generation cellular services providers should provide mobile number portability services to their customers. The details and time schedule of such mobile number portability are to be prescribed by the Directorate General of Telecommunications.

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Foreign Ownership Limitations

      The Telecommunications Act provides that direct foreign ownership in Type I service providers, except for us, may not exceed 49%, and combined direct and indirect foreign ownership in Type I service providers, except for us, may not exceed 60%. The Telecommunications Act places no limitation on foreign ownership in Type II service providers. The Ministry of Transportation and Communications separately prescribes limits on our foreign ownership. Currently, direct and indirect foreign ownership of our common shares is limited to 20%. A fine of between NT$500,000 to NT$2,500,000 may be imposed on us if we fail to comply with this limitation within a prescribed period of time after receiving a notice to comply. If we fail to comply within a prescribed period of time after such further notification, our licenses to operate our Type I services may be revoked.

      Under the current Telecommunications Act, the Chairman of a Type I service provider is required to be a citizen of the Republic of China.

Administrative Fee

      According to the Administrative Fee Law promulgated in December 2002, central and local governments, government agencies and schools are empowered to collect administrative fees from us and other telecommunications services providers for the telecommunications facilities built on public roads and properties. Such administrative fees are further specified in the draft amendment to the Public Road Law, under which fixed line services operators, such as us, and public facility providers shall pay a usage fee when utilizing public roads to install pipelines or other public facilities. The types of telecommunications facilities that will be subject to these fees and the amount of these fees will be determined under the rules to be promulgated by the relevant government, government agency or school.

Laws and Regulations Relating to State Owned Enterprises and Our Privatization

Law Governing Administration of State Owned Enterprises

      As a state owned enterprise, we are subject to the Law Governing Administration of State Owned Enterprises.

Generally same rights and obligations as private enterprises

      Unless otherwise stipulated by laws, we have the same rights and obligations as non-state owned enterprises.

Approval Required for Certain Activities

      We are required to obtain the approval of the Ministry of Transportation and Communications for the certain activities, including:

(1)	entering into purchase or sale agreements of a long term nature or of an amount exceeding that prescribed by the Ministry of Transportation and Communications;
(2)	issuing corporate bonds;
(3)	purchasing any equipment or buildings outside the scope of our business; and
(4)	technical cooperation with foreign persons.

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Labor Union Representative Required for Board Member

      At least one fifth of our directors representing the government’s shareholding must be representatives of our labor union.

Statute Governing Privatization of State Owned Enterprises

      Under the Statute Governing Privatization of State Owned Enterprises, the privatization of a state owned enterprises, including us, can be conducted through the following:

•  sales of shares or assets;

•  incorporation of non-state owned joint ventures with assets injection as share capital;

•  merger with an existing company to be a non-state owned enterprise; or

•  rights offering.

The sale must be open to the public and may be made through negotiation if approved by the Executive Yuan. In addition, the price of the sale must be determined by an evaluation commission comprising of the representatives from the Ministry of Transportation and Communications and other authorities.

Pension Payment

      Upon the completion of our privatization, we will make a settlement payment to our employees who choose to remain with us, based on their seniority and in accordance with the pension payment determined under the Labor Standards Law as if they have retired at the time of privatization. Those employees who remain with us and who are laid off within five years after the completion of our privatization will be entitled to a severance payment plus six-months salary and one-month wages. The government has agreed to assume the cost of paying the six-months salary to the laid-off employees. In addition, if these laid-off employees qualify for retirement benefits, they will also be entitled to pension payments.

      On the date of our privatization, we will make termination payments in accordance with the pension payment determined under the Labor Standards Law plus six-months salary and one-month wages to our employees who choose to resign. The government has agreed to assume the cost of paying the six-months salary to our employees who choose to resign.

Indemnification

      The government will indemnify those employees who have suffered from any losses and damages due to our privatization, such as losses arising from change of an insurance program.

      Part of the funds realized from our privatization will be allocated to the Privatization Fund and the rest of the funds will go to the Treasury of the Republic of China. Indemnification payments by the government will be made from the Privatization Fund.

Employee Subscription Rights for Privatization

      The statute also provides that when our shares are sold for privatization, a certain portion of these shares must be reserved for purchase by our employees at favorable terms approved by the Executive Yuan in accordance with the regulations issued by the Ministry of Transportation and Communications.

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Government Procurement Law

      As a state owned enterprise, we are subject to the Government Procurement Law for all procurements, including contracting of construction works, purchase or lease of properties or retention of services or employment.

      Under the Government Procurement Law, subject to limited special relief granted to us by the Ministry of Transportation and Communications, all procurements over NT$1 million must be made by open tender, selective tender or limited tender procedures. Open tender means the procedures under which a public notice is given to invite suppliers to submit their tenders. Selective tender means the procedure under which a public notice is given to invite all interested suppliers to submit their qualification documents for pre-qualification evaluation based upon specific qualification requirements. After such evaluation, the qualified suppliers are invited to tender. Limited tender means the procedure under which, where no public notice is given, two or more suppliers are invited to compete or only one supplier is invited to tender.

Budget Law and Audit Law

      Under the Budget Law, we are required to submit our budget for each fiscal year to the Legislative Yuan for their approval. In addition, under the Audit Law our financial statements, including our earnings and losses, will be reviewed and will be subject to adjustments by the Ministry of Audit under the Control Yuan. Our financial statements presented in this prospectus are prepared in accordance with US GAAP and have not been subject to adjustments by the government.

Statute of Chunghwa Telecom Co., Ltd.

Approval of Ministry of Transportation and Communications

      Under the Statute of Chunghwa Telecom Co., Ltd, we must obtain approval of the Ministry of Transportation and Communications for:

(1)	the adoption of and any changes to our articles of incorporation and board of directors organization rules;
(2)	any changes to our authorized capital and any issuance of our common shares;
(3)	any changes to primary tariffs for Type I service; and
(4)	any changes to operational procedures of Type I services.

Pension Obligation

      We are required to fund any shortfall in our pension fund reserves within eight years after our incorporation. Consequently, if we record any extra earnings over our previous estimated earnings approved by the Legislative Yuan, these extra earnings must be first allocated to pension fund reserves. In addition, as required by the Statute Governing Privatization of State Owned Enterprises, we are required to perform all of our pension obligations upon the completion of our privatization.

Employees Subscription Rights for New Issue of Our Common Shares

      Our employees have rights to subscribe for not more than 10% of a new issuance of our common shares at favorable terms in accordance with the subscription rules announced by the Ministry of Transportation and Communications.

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Recent Resolution Passed by Legislative Yuan

      The Legislative Yuan passed a resolution on May 30, 2003 with respect to our privatization through a sale of our common shares, which resolved that:

      (1) In case of our privatization by way of a sale of our common shares or a capital increase for cash, such privatization shall not be made through negotiated transactions;

      (2) Open tenders for our common shares may be conducted only after 10 offers of our common shares to the general public in Taiwan;

      (3) The notice period for open tenders shall be:

      (a) not less than 28 days for open tenders in an amount less than NT$200 million;

      (b) not less than two months for open tenders in an amount of NT$200 million or above but less than NT$1 billion;

      (c) not less than three months for open tenders in an amount of NT$1 billion or above but less than NT$10 billion;

      (d) not less than four months for open tenders in an amount of NT$10 billion or above but less than NT$20 billion; and

      (e) not less than five months for open tenders in an amount of NT$20 billion or above; and

      (4) In the event the amount of an open tender is more than NT$10 billion, or the shareholding subject to the open tender would be able to effect the change of one or more directors or supervisors of our company, prior approvals from our board of directors and the Chunghwa Telecom Share Sale Supervisory Committee of the Legislative Yuan, which shall be formed by the Legislative Yuan in proportion to the seats held by legislators of various parties, would be required.

      There is no further legislative interpretation with respect to the above resolution. We have been advised by our Republic of China counsel, Baker & McKenzie, that according to their interpretation of the above resolution, based on the nature of the offering of the ADSs, the sale of our common shares in the form of ADSs and the repurchase of our common shares will not be affected by the above resolution.

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MANAGEMENT

      Members of our board of directors are elected by our shareholders. The chairman of our board of directors is elected by our directors. Our chairman presides at all meetings of our board of directors and also has the authority to act as our representative. The term of office for each of our directors is three years.

      Our articles of incorporation provide for a 15-member board of directors, of which at least one fifth must be comprised of expert representatives. Although expert representatives are not required by Republic of China law or regulation, our articles of incorporation require our board of directors to include representatives who possess a high level of professional experience and achievement in their respective fields of expertise so that we can benefit from their knowledge and experience. Dr. Jing-Twen Chen, Dr. Zsehong Tsai and Mr. Tse-Ming Chang serve as our expert representatives. The Republic of China government recently enacted a law requiring each state owned company to have at least one fifth of its directors designated by the government to be labor union representatives. Messrs. Shih-Peng Tsai, Yauh Hong Lin and Yi Maw Lin serve as our labor union representatives. The term of office for our directors is three years.

      Our articles of incorporation provide that we should have four supervisors. In accordance with the Republic of China Company Law, our supervisors are elected by our shareholders and may not concurrently serve as our directors, executive officers or other staff members. The term of office for our supervisors is three years. Supervisors’ duties and powers include, but are not limited to, supervision of our business operations, investigation of our financial condition, inspection of corporate records, verification of statements by the board of directors, calling of and giving reports at shareholders’ meetings, representation of us in negotiations with our directors and giving notification, when appropriate, to the board of directors to cease acting in contravention of applicable law or regulations, our articles of incorporation or the resolutions of our shareholders.

      In the event preferred shares are outstanding, the holder of these preferred shares will be entitled to appoint one director and one supervisor. Under the Telecommunications Act of the Republic of China, the preferred shares may only be issued to the Ministry of Transportation and Communications. See “Description of Share Capital — Preferred Shares” beginning on page 135.

      Under the Republic of China Company Law, a person may serve as our director or supervisor in his personal capacity or as the representative of another legal entity. A director or supervisor who serves as the representative of a legal entity may be removed or replaced at any time at the discretion of that legal entity, and the replacement director or supervisor may serve the remainder of the term of office of the replaced director or supervisor. All of our directors and supervisors are representatives of the Ministry of Transportation and Communications. However, the Ministry of Transportation and Communications has agreed that at least two directors will not have any current or previous affiliation with either the Ministry of Transportation and Communications or us, and that these two directors will not be removed or replaced during their three year terms of office, except for cause. Currently, Dr. Jing-Twen Chen and Dr. Zsehong Tsai serve as our directors satisfying these criteria.

      The Sarbanes-Oxley Act of 2002 directs the Securities and Exchange Commission to require U.S. national securities exchanges, such as the New York Stock Exchange, and national securities associations to adopt rules that prohibit the listing of any security of an issuer that is not in compliance with the relevant audit committee requirements set forth in such act. We do not currently have an audit committee or an audit committee financial

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expert. We intend, however, to fully comply with all applicable rules and regulations and New York Stock Exchange listing requirements regarding the need for, and composition of, an audit committee, and SEC rules and regulations and New York Stock Exchange listing requirements regarding audit committee financial experts. The Securities and Exchange Commission adopted final rules relating to the audit committee requirements on April 1, 2003. The related New York Stock Exchange listing requirements for non-U.S. issuers are required to be adopted and come into effect by July 31, 2005.

      The business address of our directors, supervisors and executive officers is the same as our registered address. The current term of all our directors and supervisors will end on July 12, 2005.

      The following table sets forth the name, age, position and tenure of each of our directors, supervisors and executive officers and such person’s position as of March 31, 2003. There is no family relationship between any of these persons.

				Tenure
Name	Age		Position	with us
Tan Ho Chen		53	Chairman	2 months
Shyue-Ching Lu		54	Director, President and Chief Executive Officer	25 years
Oliver F.L. Yu		57	Director	9 months
Joseph Jye-Cheng Lyu		46	Director	2 years
Lai-Hsi Lee		49	Director	5 months
Yu-Huei Jea		60	Director	5 years
Chung-Hsiuing Wang		60	Director	2 months
Ching-Tern Huang		62	Director	2 months
Peter C. Lin		66	Director	2 years
Jing-Twen Chen		48	Director	2 years
Tse-Ming Chang		35	Director	2 months
Zsehong Tsai		41	Director	9 months
Shih-Peng Tsai		44	Director	30 years
Yauh Hong Lin		48	Director	24 years
Yi Maw Lin		45	Director	29 years
Judy Fu-Meei Ju		45	Supervisor	4 months
Ching-Nain Tsai		50	Supervisor	1 month
Jui-Min Chen		47	Supervisor	9 months
Yeong-Chwan Hwang		47	Supervisor	4 years
Chun-Ming Hsieh		58	Senior Vice President	34 years
Feng-Hsiung Chang		58	Senior Vice President	33 years
Cheng-Chang Chen		63	Secretary General and Senior Vice President	39 years
John C.C. Hsueh		57	Executive Vice President	31 years
Jui-Hsiung Chen		63	Executive Vice President	39 years
Cheng-Tsun Chiang		55	Executive Vice President	31 years
Chin-Yi Yue		60	Executive Vice President	36 years
Shaio-Tung Chang		56	Executive Vice President	33 years
Yen-Sung Lee		54	Executive Vice President	29 years
Tse-Min Chen		63	Chief Accounting Officer	43 years

      Tan Ho Chen is our Chairman. Mr. Ho Chen is also currently an Executive Officer of The National Land Policy Advisory Committee, Office of the President, Republic of China. Mr. Ho Chen was the Executive Vice Minister of the Ministry of Transportation and Communications from 2000 to 2001. Mr. Ho Chen holds a Master’s degree in regional and urban planning

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from Virginia Polytechnic Institute & State University and a Bachelor’s degree in civil engineering from Chung-Hsing University and studied urban planning while on a Humphrey fellowship at Hunter College in New York.

      Shyue-Ching Lu is a director and the President and Chief Executive Officer of our company. Dr. Lu is also currently a board member of the Industrial Technology Research Institute. Dr. Lu was the Director General of the Department of Posts and Communications of the Ministry of Transportation and Communications from 1993 to 1994, and the Deputy Director General of the Directorate General of Telecommunications from 1994 to 1996. Dr. Lu holds a Ph.D. degree in electrical engineering from the University of Hawaii and a Bachelor of Science degree in engineering from the National Cheng-Kung University in Taiwan.

      Oliver F.L. Yu is a director of our company. Mr. Yu is also currently the Vice Minister of the Ministry of Transportation and Communications. Mr. Yu was the Director of Kaohsiung Harbor Bureau from 1996 to 2001, and the Director General of Civil Aeronautics Administration, Ministry of Transportation and Communications from 2001 to 2002. Mr. Yu holds a Master of Business Administration degree from the Institute of Management Science, National Chiao Tung University, and a Bachelor’s degree in transportation and communications management science from the National Cheng Kung University in Taiwan.

      Joseph Jye-Cheng Lyu is a director of our company. Mr. Lyu is also currently the Vice Chairman of the Commission of National Corporations, the Ministry of Economic Affairs, a Director of China Steel Co., Ltd. and an Adjunct Professor in global corporate finance at the National Chengchi University in Taiwan. Mr. Lyu was the Senior Executive Vice President of our company from July 2001 to February 2002 and the Deputy General Manager of KBC Bank N.V. from 1995 to July 2001. Mr. Lyu holds a Master of Management degree from the Kellogg Graduate School of Management, Northwestern University.

      Lai-Hsi Lee is a director of our company. Mr. Lee is also currently the Director of Labor Relations Department of the Council of Labor Affairs. Mr. Lee graduated from the Law School of Soochow University in Taiwan in 1978. He also holds a Master’s degree from the University of Wisconsin — Madison.

      Yu-Huei Jea is a director of our company. Dr. Jea is also a Senior Counselor of the Ministry of Transportation and Communications. Dr. Jea was the Director General of the Department of Posts and Telecommunications from 1994 to 1996, and the Director General of the Directorate General of Telecommunications from 1996 to 1997. Dr. Jea holds a Ph.D. degree from the University of Texas at Austin.

      Chung-Hsiuing Wang is a director of our company. Mr. Wang is also the Director of the Keelung Harbor Bureau, the Ministry of Transportation and Communications. Mr. Wang was the Secretary General of the Keelung Harbor Bureau between May 1992 and May 1994, and the Deputy Director of the same institution between May 1994 and January 2002. He holds a Master’s degree in shipping and transportation management from National Taiwan Ocean University. He also serves as a Commissioner of the Tariff Stipulating Commission of the Ministry of Transportation and Communications.

      Ching-Tern Huang is a director of our company. Mr. Huang is also a Director of Kaohsiung Harbor Bureau, the Ministry of Transportation and Communications. Mr. Huang was the Director of the Hualien, Keelung and Taichung Harbor Bureaus from 1994 to 2001. He graduated from the National Taiwan Ocean University.

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      Peter C. Lin is a director of our company. Dr. Lin is also a Professor and Director of the Institute of Management and Operation at Kao Yuan Institute of Technology in Taiwan and an advisor to the President of the Republic of China. Dr. Lin was the Director of the Institute of Economics of the National Sun Yat-Sen University in Taiwan from August 1996 to September 2001. Dr. Lin holds a Ph.D degree in agricultural economics from the University of Wisconsin — Madison.

      Jing-Twen Chen is a director of our company. Dr. Chen is also a Professor at the Department of Finance of the National Central University in Taiwan. Dr. Chen holds a Ph.D degree in finance from the National Taiwan University of Science and Technology.

      Tse-Ming Chang is a director of our company. Mr. Chang is also currently the Chairman of Taipei Digital Content Protection Association, a Director of China Multimedia Association and a Director of Atlas Internet & Life International, Inc. Mr. Chang holds a Master’s of Business Administration degree and a Bachelor’s degree in International Business from the National Taiwan University.

      Zsehong Tsai is a director of our company. Dr. Tsai is also currently a Professor of Electrical Engineering at the National Taiwan University, a member of Telecommunications Advisory Board of the Ministry of Transportation and Communications, Group Leader of National Telecommunication Program Office, Broadband Internet Group, and a Director of the Broadcasting Development Fund. Mr. Tsai holds a Ph.D. degree and a Master of Science degree in electrical engineering from the University of California, and a Bachelor of Science degree in electrical engineering from the National Taiwan University.

      Shih-Peng Tsai is a director of our company. Mr. Tsai is also currently a representative of Member’s Convention, Chunghwa Telecom Workers Union, and serves as Manager of our SeeKoo Service Center. Mr. Tsai graduated from Ta Tung Junior Technological College of Commerce.

      Yauh Hong Lin is a director of our company. Mr. Lin is also currently a representative of Member’s Convention, Chunghwa Telecom Workers Union, and serves as Technical Assistant at Network Department of our Central Taiwan Business Group. Mr. Lin graduated from the Kuang-Hwa Vocational High School of Technology.

      Yi Maw Lin is a director of our company. Mr. Lin is also currently a representative of Member’s Convention and a member of Publication Editorial Committee, Chunghwa Telecom Workers Union, a Standing Director of Taichung Branch, Chunghwa Telecom Workers Union, and serves as Assistant Engineer at Network Department of our Central Taiwan Business Group. Mr. Lin graduated from the Chin-Yi Institute of Technology. Mr. Lin is currently studying public administration and information management at the National Open University in Taiwan.

      Judy Fu-Meei Ju is a supervisor of our company. Ms. Ju also serves as the Third Department Director General of the Executive Yuan and a public prosecutor at the Taiwan Superior Court Prosecutor’s Office. In addition to holding LL.M. and Master in Civil Law degrees from the National Taiwan University and Indiana University, respectively, Ms. Ju is currently a Ph.D. degree candidate at the National Taiwan University.

      Ching-Nain Tsai is a supervisor of our company. Mr. Tsai is currently the Deputy Director General of Bureau of Monetary Affairs of the Ministry of Finance. Mr. Tsai was the Deputy Director General of the Department of National Treasury from 1997 to 1999, and the Commissioner and Secretary General of Securities and Futures Commission of the Republic

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of China from 1955 to 1997. Mr. Tsai holds a Master’s degree in industrial management from the National Cheng Kung University in Taiwan.

      Jui-Min Chen is a supervisor of our company. Mr. Chen is currently the Director of the Department of Accounting of the Ministry of Transportation and Communications. Mr. Chen was previously the Director of the Department of Accounting of the Coast Guard Administration, the Executive Yuan. Mr. Chen graduated from the College of Business Department of Accounting, Feng Chia University.

      Yeong-Chwan Hwang is a supervisor of our company. Mr. Hwang is also currently the Director of Accounting Office and the Vice Chairperson of Accounting Operations Unit of the Directorate General of Budget, Accounting and Statistics of the Executive Yuan. Mr. Hwang holds a Master’s degree from Soochow University and a Bachelor’s degree in accounting from the Fu-Jen Catholic University, both in Taiwan.

      Chun-Ming Hsieh is a Senior Vice President of our company. Mr. Hsieh is also a member of the board of directors of Lucent Technologies Taiwan Telecommunications Co., Ltd., one of our affiliates, and Taipei Financial Center Corp. Mr. Hsieh served as Deputy Managing Director of the Central Taiwan Telecommunications Administration from 1994 to 1996. Mr. Hsieh holds a Bachelor’s degree in electrical engineering from the National Cheng-Kung University and a Master’s degree in management science from the National Chiao Tung University, both in Taiwan.

      Feng-Hsiung Chang is a Senior Vice President of our company. Mr. Chang is also a director of Siemens Telecommunications Systems and Chunghwa Investment Co., Ltd. Mr. Chang served as Deputy Managing Director of the Northern Taiwan Telecommunications Administration from 1994 to 1996. Mr. Chang holds a Bachelor’s degree from Chung-Hsing University and a Master of Business Administration degree from the National Chiao Tung University, both in Taiwan.

      Cheng-Chang Chen is the Secretary General and a Senior Vice President of our company. Mr. Chen is also a supervisor of Siemens Telecommunications Systems Limited and a director of Chunghwa Investment Co., Ltd. Mr. Chen served as Managing Director of the Personnel Department of the Directorate General of Telecommunications from 1992 to 1995 and the Secretary General of the Directorate General of Telecommunications in 1996. Mr. Chen holds a Bachelor’s degree in business administration from the National Cheng-Kung University and a Master of Business Administration degree from the National Chiao Tung University, both in Taiwan.

      John C.C. Hsueh is an Executive Vice President of our company. Dr. Hsueh is also a member of the board of directors of RPTI International. Dr. Hsueh served as Vice President of our Northern Taiwan Business Division from 1996 to 1998 and as President of our Telecommunications Laboratories from 1998 to 2000. Dr. Hsueh holds a Ph.D. degree in electrical engineering and computer science from Northwestern University.

      Jui-Hsuing Chen is an Executive Vice President of our company. Mr. Chen is also a director of International Telecommunications Development Corporation, one of our affiliates. Mr. Chen served as Managing Director of the Central Taiwan Telecommunications Administration Office of the Directorate General of Telecommunications from 1994 to 1996. Mr. Chen holds a Bachelor’s degree from the National Cheng-Kung University in Taiwan.

      Cheng-Tsun Chiang is an Executive Vice President of our company. Mr. Chiang is also a director of RPTI International. Mr. Chiang served as the Managing Director for our

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Network Department from 1999 to 2001. Mr. Chiang holds a Master’s degree from Feng Chia University in Taiwan.

      Chin-Yi Yue is an Executive Vice President of our company. Mr. Yue is also a supervisor to the International Telecommunications Development Corp. Mr. Yue served as Vice President for our Long Distance and Mobile Division from 1996 to 2000 and Vice President of our Long Distance Communications Administration from 1994 to 1996. Mr. Yue holds a Master’s degree in electrical engineering from the National Taiwan University.

      Shaio-Tung Chang is an Executive Vice President of our company. Mr. Chang was the general manager of our Marketing Department from 1996 to 2001. Mr. Chang holds a Master of Business Administration degree from the National Chiao Tung University in Taiwan.

      Yen-Sung Lee is an Executive Vice President of our company. Mr. Lee was the general manager of our Information Department from 1996 to 2002. Mr. Lee is also a supervisor of RPTI International and holds a Ph.D. degree in information science from the National Chiao Tung University in Taiwan.

      Tse-Min Chen is our chief accounting officer. Mr. Chen served as the division chief of the Accounting Department of the Directorate General of Telecommunications and supervisor of Taipei Financial Co., Ltd. Mr. Chen received a Bachelor’s degree in accounting and statistics from Tamkang University in Taiwan.

  Compensation of Directors, Supervisors and Executive Officers

      The aggregate amount of compensation that we paid to our directors, supervisors and executive officers for services performed as our directors, supervisors, officers or employees was NT$32.8 million during the year ended June 30, 2000, NT$15.9 million during the six months ended December 31, 2000, NT$33.9 million during the year ended December 31, 2001, NT$30.2 million (US$0.9 million) during the year ended December 31, 2002 and NT$7 million (US$0.2 million) during the three months ended March 31, 2003. None of our directors receives any benefits upon expiration of his or her service as director. Under our articles of incorporation, the compensation of our directors and supervisors may not exceed 0.2% of our distributable retained earnings and may be approved only pursuant to a validly convened shareholders’ meeting.

  Share Ownership

      As of April 30, 2003, our directors, supervisors and executive officers held in the aggregate 120,655 of our common shares, representing a negligible percentage of our outstanding common shares. As of the same date, we do not have any outstanding or unexercised options.

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RELATIONSHIP WITH THE GOVERNMENT OF THE REPUBLIC OF CHINA

      The Ministry of Transportation and Communications, on behalf of the Republic of China government, currently owns approximately 79.56% of our outstanding common shares and will own approximately 71.79% of our outstanding common shares after the completion of this offering. As a result, the Ministry of Transportation and Communications will be able to determine the outcome of any corporate transaction or other matters submitted to our shareholders for approval. In addition, for so long as the government continues to own a majority of our common shares, our autonomy will continue to be limited by governmental regulations relating to state owned enterprises. These regulations limit our autonomy on matters relating to our budget and dividend policies and key employment terms for our employees, including salary, pension and discharge policies. The Ministry of Transportation and Communications currently has the power to appoint our president and a majority of our directors and supervisors. Furthermore, the Telecommunications Act and our articles of incorporation provide that the Ministry of Transportation and Communications has the right to subscribe for two of our preferred shares upon the government owning less than 50% of our outstanding common shares. The Ministry of Transportation and Communications, as owner of these preferred shares, will be entitled to appoint one director and one supervisor and will have the right to veto any change in our name or our businesses and any transfer of a substantial part of our business or property for so long as these preferred shares are outstanding. These preferred shares will be redeemed by us at their initial issue price of NT$10 per share three years after their issuance. See “Description of Share Capital — Preferred Shares” beginning on page 135.

      As a state owned enterprise, we are required, subject to limited special relief granted to us by the Ministry of Transportation and Communications, to undergo a lengthy governmental procurement process relating to the acquisition of goods and services. In addition, our budget must be approved by the Legislative Yuan as part of the government budget. The Ministry of Audit under the Control Yuan has the authority to audit our accounts and to adjust our profits and losses. Our financial statements presented in this prospectus and prepared in accordance with US GAAP have not been subject to adjustment by the government.

      The government is one of our largest customers. We transact business with various departments and agencies of the government, as separate customers, on an arm’s length basis.

      The government also has the power to take actions with respect to our networks in the interests of national security.

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PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER

      The following table sets forth information known to us with respect to the beneficial ownership of our shares as of the date of this prospectus, for the Republic of China Government and the Ministry of Transportation and Communications, and as of April 18, 2003, the most recent practicable date, for (1) the shareholders known by us to own at least 5.0% of our outstanding common shares and (2) all directors, supervisors and executive officers as a group. The Ministry of Transportation and Communications is selling up to an aggregate of 750,000,000 shares in this offering, subject to the exercise by the underwriters of their overallotment option.

	Shares Beneficially Owned					Shares Being Sold in the					Shares Beneficially Owned
	Prior to the Offering					Offering					After the Offering
Name	Number		Percent			Number		Percent			Number		Percent
Republic of China Government(1)(2)		7,810,869,649		80.96	%		750,000,000		7.77	%		7,060,869,649		73.19	%
Ministry of Transportation and Communications(1)		7,675,953,649		79.56	%		750,000,000		7.77	%		6,925,953,649		71.79	%
Cathay Life Insurance Co., Ltd.(3)		664,971,000		6.89	%		—		—			664,971,000		6.89	%

(1)	The number of shares being sold in the offering may be increased to 761,250,000, if the underwriters exercise the option granted to them by the Ministry of Transportation and Communications to purchase up to an additional 112,500,000 of our common shares owned by the Ministry of Transportation and Communications.
(2)	Includes: (a) the 7,675,953,649 of our common shares owned by the Ministry of Transportation and Communications, (b) the 15.0 million of our common shares owned by The Development Fund, (c) the 37.2 million of our common shares owned by The Labor Insurance Fund, and (d) the 86.6 million of our common shares owned by the Directorate General of Postal Remittances and Savings Banks, all of which entities are controlled, directly or indirectly, by the Republic of China government.
(3)	Cathay Life Insurance Co., Ltd. is a wholly owned subsidiary of Cathay Financial Holdings Co., Ltd., which is a widely held public company in the Republic of China.

      As of April 18, 2003, (1) Taiwan Cellular Corporation owned 375,000,000, or 3.89%, (2) TransAsia Telecommunication owned 75,000,000, or 0.78%, (3) Howin Technologies Corporation owned 50,000,000, or 0.52%, (4) Taiwan Hoyuan Investment Co. owned 42,000,000, or 0.44%, and (5) Taiwan Fixed Network Co., Ltd. owned 33,000,000, or 0.34%, of our outstanding common shares, respectively. Taiwan Cellular Corporation is a 33.35% owned subsidiary of Taiwan Fixed Network Co., Ltd. Taiwan Cellular Corporation owned approximately 10% of shares of Taiwan Fixed Network Co., Ltd. TransAsia Telecommunication is a wholly owned subsidiary of Taiwan Cellular Corporation. Howin Technologies Corporation and Taiwan Hoyuan Investment Co. are 66.67% and 100.00%, respectively, owned subsidiaries of Taiwan Fixed Network Co., Ltd.

      As of the date of this prospectus, the Ministry of Transportation and Communications of the Republic of China, located at 2 Chang Sha Street, Section 1, Taipei, Taiwan, Republic of China, owns 7,675,953,649, or approximately 79.56%, of our 9,647,724,900 outstanding common shares. Following the sale of the ADSs by the Ministry of Transportation and Communications as described in this prospectus, the Ministry of Transportation and Communications will own 6,925,953,649, or approximately 71.79% of our 9,647,724,900 outstanding common shares.

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      In connection with our privatization, the Ministry of Transportation and Communications currently intends to conduct an auction of our common shares in the Republic of China concurrently with the offering on the date of this prospectus.

      The Ministry of Transportation and Communications owned 9,371,214,104, or 97.13%, 9,196,806,888, or 95.33%, and 7,896,533,299, or 81.85% of our outstanding common shares as of December 31, 2000, 2001 and 2002, respectively. Following the completion of our privatization, the Ministry of Transportation and Communications will be issued certain preferred shares. Under our articles of incorporation, the holder of preferred shares is entitled to certain rights, including the right to act as our director and/or supervisor. See “Description of Share Capital — Preferred Shares” beginning on page 135.

      In addition, The Development Fund and The Labor Insurance Fund, both of which are associated with the Republic of China government, purchased an aggregate of 19 million of the common shares offered in our initial public offering in Taiwan. The Development Fund and The Labor Insurance Fund owned 15.0 million and 37.2 million of our common shares, respectively, as of April 18, 2003. Furthermore, the Directorate General of Postal Remittances and Savings Banks, under the Ministry of Transportation and Communications, purchased 15 million of the common shares offered in our initial public offering in Taiwan, and acquired additional common shares in open market transactions. The Directorate General of Postal Remittances and Savings Banks owned 82.6 million common shares, representing 0.8% of our outstanding common shares as of April 18, 2003. See “Shares Eligible For Future Sale” on page 132.

      In December 2002, several local investors won an auction of our common shares held by the Ministry of Transportation and Communications, and purchased an aggregate of 1.3 billion common shares of our company. Among these investors, Cathay Life Insurance Co., Ltd. and its affiliate collectively acquired 6.89% of our outstanding common shares, Taiwan Cellular Corporation and its affiliates collectively acquired 5.63% of our outstanding common shares, and Fubon Life Insurance Co., Ltd. and its affiliate collectively acquired 0.78% of our outstanding common shares.

      In connection with the establishment of the National Financial Stabilization Fund, the Ministry of Transportation and Communications has pledged 2.8 billion of our common shares as security to support borrowings by the National Financial Stabilization Fund from a syndicate of commercial banks in Taiwan. These 2.8 billion pledged shares represent 29.0% of our total outstanding common shares, and 36.5% of our outstanding common shares owned by the Ministry of Transportation and Communications. See “The Securities Markets of Taiwan — National Financial Stabilization Fund” beginning on page 152.

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SHARES ELIGIBLE FOR FUTURE SALE

      Upon completion of this offering, the ADSs sold in this offering will be freely tradeable within the United States without restriction or further registration under the Securities Act by persons other than us or our affiliates as defined in Rule 144 under the Securities Act.

      We and the Ministry of Transportation and Communications have agreed for a period of 90 days after the date of this prospectus not to offer, sell, contract to sell, hedge or otherwise dispose of, without the prior written consent of the representatives of the underwriters:

•  any of our common shares or depositary receipts representing our common shares;

•  any common shares of our subsidiaries or controlled affiliates or depositary receipts representing those shares; and

•  any securities that are substantially similar to the common shares or depositary receipts referred to above, including any securities that are convertible into, exchangeable for or otherwise represent the right to receive the common shares or depositary receipts referred to above;

other than pursuant to, as applicable:

•  an employee benefits plan or distribution of dividends or employee bonuses in the form of shares;

•  the employee share purchase plans relating to our privatization (which employee share purchase plans are described in this prospectus under the caption “Business — Employees”);

•  sales to certain strategic investors, provided that such strategic investors are subject to the restrictions described above;

•  sales of common shares to us by the Ministry of Communications and Transportation in connection with the repurchases of our common shares conducted by us; or

•  an auction of our common shares to be conducted by the Ministry of Transportation and Communications in the Republic of China concurrently with the offering.

      In addition, the Ministry of Transportation and Communications has agreed that, after the completion of our privatization, until the earlier of (1) 180 days after the completion of our privatization and (2) December 31, 2004, not to offer, sell, contract to sell, hedge or otherwise dispose of, without the prior consent of the representatives of the underwriters:

•  any of our common shares or depositary receipts representing our common shares;

•  any common shares of our subsidiaries or controlled affiliates or depositary receipts representing those shares; and

•  any securities that are substantially similar to the common shares or depositary receipts referred to above, including any securities that are convertible into, exchangeable for or otherwise represent the right to receive the common shares or depositary receipts referred to above;

other than pursuant to:

•  sales to certain strategic investors, provided that such strategic investors are subject to the restrictions described above; or

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•  sales of our common shares to us in connection with the repurchases of our common shares conducted by us.

      Two funds associated with the government of the Republic of China, the Development Fund of the Executive Yuan and the Labor Insurance Fund, purchased an aggregate of 19 million of the common shares offered in our initial public offering in Taiwan. The Development Fund and The Labor Insurance Fund owned 15 million and 37.2 million of our common shares, respectively, as of April 18, 2003. In addition, the Directorate General of Postal Remittances and Savings Banks, under the Ministry of Transportation and Communications, purchased 15 million of our common shares during our initial public offering in Taiwan, and as a result of several subsequent open market purchases, the Directorate General of Postal Remittances and Savings Banks owned 82.6 million of our common shares as of April 18, 2003. Furthermore, Public Service Pension Fund, which is also a fund associated with the government, acquired and subsequently sold 60,000 of our common shares during November 2000 in open market transactions and did not own any of our common shares as of April 18, 2003.

      The Development Fund of the Executive Yuan, the National Financial Stabilization Fund, the Labor Insurance Fund, the Labor Retirement Fund and the Directorate General of Postal Remittances and Savings Banks have agreed not to, among other things:

•  purchase any of our common shares or any securities substantially similar to our common shares or ADSs until 25 days after the date of this prospectus; or

•  offer, sell or otherwise dispose of any of our common shares or any securities substantially similar to our common shares or ADSs until 90 days after the date of this prospectus.

However, the foregoing 90 day lock-ups do not apply to any common shares acquired after the expiration of 25 days after the date of this prospectus by these entities through open market purchases on the Taiwan Stock Exchange.

      The government has publicly announced its intention to further reduce its ownership of our outstanding common shares to less than 50% through future offerings of our common shares and ADSs by December 31, 2003. Sales of substantial amounts of our ADSs or common shares in the public market, or the perception that future sales may occur, could depress the prevailing market price of ADSs and common shares.

      In connection with the establishment of the National Financial Stabilization Fund, the Ministry of Transportation and Communications has pledged 2.8 billion of our common shares as security to support borrowings by the National Financial Stabilization Fund from a syndicate of commercial banks in Taiwan. These 2.8 billion pledged shares represent 29.0% of our total outstanding common shares, and 36.5% of our outstanding common shares owned by the Ministry of Transportation and Communications. See “The Securities Markets of Taiwan — National Financial Stabilization Fund” beginning on page 152.

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RELATED PARTY TRANSACTIONS

      We have not extended any loans or credit to any of our directors, supervisors or executive officers, and we have not provided guarantees for borrowings by any of these persons. We have not entered into any fee-paying contract with any of these persons for him or her to provide services not within his or her capacity as a director, supervisor or executive officer of our company, except that three of our directors who are also our employees receive salaries from our company in their capacity as our employees.

      We currently own 40% of Taiwan International Standard Electronics. We have purchased telecommunications exchange facilities and related supplies and replacement parts from Taiwan International Standard Electronics. We acquired from Taiwan International Standard Electronics several telecommunications exchange facilities and related supplies and replacement parts for approximately NT$4.3 billion in the year ended June 30, 2000, NT$1.8 billion in the six months ended December 31, 2000, NT$3.0 billion in the year ended December 31, 2001 and NT$6.9 billion (US$198.2 million) in the year ended December 31, 2002 for these purchases. We believe that these transactions with Taiwan International Standard Electronics have been conducted on arms’ length terms.

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DESCRIPTION OF SHARE CAPITAL

      Set forth below is a summary of information relating to our share capital, including brief summaries of the relevant provisions of our articles of incorporation, the Republic of China Securities and Exchange Law, the Republic of China Company Law, the Statute of Chunghwa Telecom Co., Ltd. and the Telecommunications Act.

General

      Our authorized capital is NT$96,477,249,020, divided into 9,647,724,900 common shares, par value NT$10 per share, all of which are issued and outstanding and in registered form, and two non-transferable preferred shares. These preferred shares are to be issued for a three-year term at par value of NT$10 per share to the Ministry of Transportation and Communications upon completion of our privatization.

      The Ministry of Transportation and Communications, on behalf of the government of the Republic of China, owns approximately 79.61% of our outstanding common shares as of the date of this prospectus. The remainder of our outstanding shares are held by public shareholders and other investors. We do not have any other equity in the form of preferred shares, convertible bonds or otherwise outstanding as of the date of this prospectus.

Preferred Shares

      Under our articles of incorporation, the holder of preferred shares is entitled to the same rights as holders of common shares with respect to receiving distributions of dividends and bonuses, remaining assets available for distribution upon our dissolution, liquidation or winding up, distribution of retained earnings or capital reserve, or capital allocation.

      In addition, the holder of preferred shares will be entitled to the same voting rights as holders of common shares at any of our meetings of holders of common shares.

      The holder of preferred shares, or its nominated representative, will act as our director and/or supervisor during the existing period of the preferred shares. Any such representative is subject to removal and replacement by the Ministry of Transportation and Communications from time to time.

      When we issue new shares for cash, the holder of preferred shares will be entitled to the same pre-emptive rights as holders of common shares.

      Without the prior consent of the holder of preferred shares, we may not:

•  change our corporate name;

•  change the scope of our business; or

•  transfer the whole or a substantial portion of our business or assets.

      The holder of preferred shares may not transfer its preferred shares. We must redeem all outstanding preferred shares at par value three years from the date of their issuance. We are required to cancel these preferred shares immediately after their redemption.

Dividends and Distributions

      At each annual general shareholders’ meeting, our board of directors submits to the shareholders for their approval any proposal for the distribution of a dividend or the making of any other distribution to shareholders from our net income for the preceding fiscal year. All common shares outstanding and fully paid as of the relevant record date are entitled to

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share equally in any dividend or other distribution so approved. Dividends may be distributed in cash, in the form of common shares or a combination of the two, as determined by the shareholders at the meeting.

      We are not permitted to distribute dividends or make other distributions to shareholders in any year in which we do not have any net income or retained earnings (excluding reserves). The Republic of China Company Law also requires that 10% of our annual net income, less prior years’ losses and outstanding tax, if any, be set aside as a legal reserve until the accumulated legal reserve equals our paid-in capital. In addition, our articles of incorporation provide that at least 50% of the remaining portion of the net income, less prior years’ losses, outstanding taxes, the legal reserve and any special reserve, plus undistributed retained earnings from prior years will be distributed as dividends to shareholders. Not less than 10% of the total amount of the distributed dividends must be in cash, but if the cash dividends to be distributed are less than NT$0.10 per share, the dividends may be distributed in the form of shares. Commencing with the first fiscal year immediately following our privatization, prior to distributing any dividends to our shareholders, we must first distribute (1) not less than 1% of the distributable amount to employees as bonuses and (2) not more than 0.2% of the distributable amount to directors and supervisors as bonuses. The above percentages may be adjusted, with our shareholders’ approval, according to our actual profits, capital budget and funding conditions of that year.

      In addition, under the Statute of Chunghwa Telecom Co., Ltd., we are required to make up any shortfall in the required pension fund reserve within eight years after our incorporation. Consequently, if we record any extra earnings over our previous estimated earnings approved by the Legislative Yuan, these extra earnings shall be first allocated as our pension fund reserve.

      Under the Republic of China Audit Law, the earnings and losses of a state owned enterprise are audited by the Ministry of Audit under the Control Yuan of the Republic of China. As a result, if the amount of our earnings or loses decided by the auditing authority is different from the amount approved at our shareholders’ meeting, the latter amount shall be adjusted accordingly to be identical with the former amount, and the dividends and bonuses approved at our shareholders’ meeting will be adjusted accordingly and reported to the shareholders at the next shareholders’ meeting.

      Under our articles of incorporation, if we do not have current or retained earnings (excluding reserves) but our legal reserve exceeds 50% of our paid-in capital, we may use the excess amount to distribute dividends and bonuses. In addition, we are also permitted to make distributions to our shareholders of additional common shares by capitalizing reserves (including the legal reserve and capital surplus). However, amounts payable by capitalizing our legal reserve are limited to 50% of the total accumulated legal reserve and this capitalization can only be effected when the accumulated legal reserve exceeds 50% of our paid-in capital.

Changes in Share Capital

      Under the Republic of China Company Law and the Statute of Chunghwa Telecom Co., Ltd., any change in our authorized share capital requires an amendment to our articles of incorporation, which in turn requires approval at our shareholders’ meeting, as well as the approval of Ministry of Transportation and Communications. Authorized but unissued common shares may be issued, subject to applicable Republic of China law, upon terms as our board of directors may determine and approval by the Ministry of Transportation and Communications.

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Preemptive Rights

      Under the Republic of China Company Law and the Statute of Chunghwa Telecom Co., Ltd., when we issue new shares for cash, existing shareholders who are listed on the shareholders’ register as of the record date have preemptive rights to subscribe for the new issue in proportion to their existing shareholdings, while a company’s employees, whether or not they are our shareholders, have rights to subscribe in accordance with the subscription rules announced by the Ministry of Transportation and Communications for not more than 10% of the new issue at favorable terms. Any new shares that remain unsubscribed at the expiration of the subscription period may be offered by us to the public or privately placed.

      In addition, in accordance with the Republic of China Securities and Exchange Law, a public company that intends to offer new shares for cash must offer to the public at least 10% of the shares to be sold. This percentage can be increased by a resolution passed at a shareholders’ meeting, which would diminish the number of new shares subject to the preemptive rights of existing shareholders.

      Under the Statute Governing Privatization of State Owned Enterprises, when shares of a state owned enterprise are sold in a privatization, a certain portion of these shares must be reserved for purchase by the employees of the state owned enterprise. Our articles of incorporation also provide that when the government sells shares of us held by them, our employees will be entitled to the right to purchase up to a number of shares as provided for under the Statute Governing Privatization of State Owned Enterprises and relevant regulations.

Meetings of Shareholders

      We are required by the Republic of China Company Law and our articles of incorporation to hold a general meeting of our shareholders within six months following the end of each fiscal year. These meetings are generally held in Taipei, Taiwan. Special shareholders’ meetings may be convened by resolution of the board of directors or by the board of directors upon the written request of any shareholder or shareholders who have held 3% or more of the outstanding common shares for more than one year. Special shareholders’ meetings may also be convened by a supervisor. Notice in writing of general meetings of shareholders, stating the place, time and agenda must be dispatched to each shareholder at least 30 days, in the case of general meetings, and 15 days, in the case of special meetings, before the date set for each meeting. Except in certain circumstances described below, a majority of the holders of all issued and outstanding common shares present at a shareholders’ meeting constitutes a quorum for meetings of shareholders.

Voting Rights

      As previously required by the Republic of China Company Law, our articles of incorporation provide that a holder of common shares has one vote for each common share. Cumulative voting applies to the election of our directors and supervisors.

      In general, a resolution can be adopted by the holders of at least a majority of the common shares represented at a shareholders’ meeting at which the holders of a majority of all issued and outstanding common shares are present. Under the Republic of China Company Law, the approval by at least a majority of the common shares represented at a

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shareholders’ meeting in which a quorum of at least two-thirds of all issued and outstanding common shares are represented is required for major corporate actions, including:

•  amendment to our articles of incorporation;

•  entering into, modification or termination of any contracts regarding leasing of all business, outsourcing of operations or joint operations.

•  transfer of the whole or substantial part of our business or assets;

•  taking over of the whole of the business or assets of any other company which would have significant impact on our operations;

•  distribution of any share dividend;

•  dissolution or amalgamation;

•  merger or spin-off; and

•  removing of directors or supervisors.

      Alternatively, the Republic of China Company Law provides that in the case of a public company, such as us, a resolution may be adopted by the holders of at least two-thirds of the common shares represented at a meeting of shareholders at which holders of at least a majority of issued and outstanding common shares are present.

      A shareholder may be represented at a general or special meeting by proxy if a valid proxy form is delivered to us five days before the commencement of the general or special shareholders’ meeting. Except for trust enterprises or share registrar approved by the Securities and Futures Commission, where one person is appointed as proxy by two or more shareholders who together hold more than 3% of the total issued common shares, the votes of those shareholders in excess of 3% of the outstanding common shares shall not be counted.

      Holders of ADSs may exercise voting rights with respect to the underlying common shares in the manner as described in “Description of American Depositary Receipts — Voting Rights” beginning on page 144.

Register of Shareholders and Record Dates

      Our share registrar, Taiwan Securities Co., Ltd., maintains our register of shareholders at its offices in Taipei, Taiwan, and enters transfers of common shares in our register upon presentation of, among other documents, certificates representing the common shares transferred. Under the Republic of China Company Law and our articles of incorporation, we may, by giving advance public notice, set a record date and close the register of shareholders for a specified period in order for us to determine the shareholders or pledgees that are entitled to rights pertaining to the common shares. The specified period required is as follows:

•  general shareholders’ meeting — 60 days;

•  special shareholders’ meeting — 30 days; and

•  relevant record date — five days.

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Annual Financial Statements

      At least ten days before the annual general shareholders’ meeting, our annual financial statements must be available at our principal office in Taipei, Taiwan for inspection by the shareholders.

Transfer of Common Shares

      The transfer of common shares in registered form is effected by endorsement and delivery of the related share certificates but, in order to assert shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. Shareholders are required to file their respective specimen seals, also known as chops, with us. Chops are official stamps widely used in Taiwan by individuals and other entities to authenticate the execution of official and commercial documents.

Acquisition of Our Own Common Shares

      Under the Republic of China Company Law, with minor exceptions, we cannot acquire our own common shares. Any common shares acquired by us, under certain of such minor exceptions, must be sold at the market price within six months after their acquisition.

      In addition, under the Republic of China Securities and Exchange Law, a company whose shares are listed on the Taiwan Stock Exchange or traded on the GreTai Securities Market may, pursuant to a board resolution adopted by a majority consent at a meeting attended by more than two-thirds of the directors and pursuant to the procedures prescribed by the Republic of China Securities and Futures Commission, purchase its shares for the following purposes on the Taiwan Stock Exchange, the GreTai Securities Market or by a tender offer:

(1)	for transfers of shares to its employees;
(2)	for conversion into shares from bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by the company; and
(3)	for maintaining its credit and its shareholders’ equity, provided that the shares so purchased shall be cancelled thereafter.

      The total shares purchased by the company shall not exceed 10% of its total issued and outstanding shares. In addition, the total amount for purchase of the shares shall not exceed the aggregate amount of the retained earnings, the premium from shares issues and the realized portion of the capital reserve.

      The shares purchased by the company pursuant to items (1) and (2) above shall be transferred to the intended transferees within three years after the purchase, otherwise the same shall be cancelled. For the shares to be cancelled pursuant to item (3) above, the company shall complete amendment registration for such cancellation within six months after the purchase.

      The shares purchased by the company shall not be pledged or hypothecated. In addition, the company may not exercise any shareholders’ rights attaching to these shares. The company’s affiliates (as defined in Article 369-1 of the Republic of China Company Law), directors, supervisors, managers and their respective spouses and minor children and/or nominees are prohibited from selling the shares of the company held by them during the purchase period of such shares reported by the company to the Republic of China Securities and Futures Commission.

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Liquidation Rights

      In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed pro rata to the shareholders in accordance with the relevant provisions of the Republic of China Company Law and our articles of incorporation.

Substantial Shareholders and Transfer Restrictions

      The Republic of China Securities and Exchange Law currently requires (1) each director, supervisor, manager, as well as their respective spouses, minor children and nominees, and substantial shareholder (i.e., shareholder who together with his or her spouse, minor children or nominees, holds more than 10% of the shares of a public company) to report any change in that person’s shareholding to the issuer of the shares and (2) each director, supervisor, manager or substantial shareholder holding such common shares for more than a six month period to report his or her intent to transfer any shares listed on the Taiwan Stock Exchange or traded on the Over-the-Counter Securities Exchange to the Republic of China Securities and Futures Commission at least three days before the intended transfer, unless the number of shares to be transferred is less than 10,000 shares. ADS holders holding more than 10% of our common shares, including common shares represented by ADSs, may be subject to the reporting obligation in above item (1).

      In addition, the number of shares that can be sold or transferred on the Taiwan Stock Exchange by any person subject to the restrictions described above on any given day may not exceed:

•  0.2% of the outstanding shares of the company in the case of a company with no more than 30 million outstanding shares; or

•  0.2% of 30 million shares plus 0.1% of the outstanding shares exceeding 30 million shares in the case of a company with more than 30 million outstanding shares; or

•  in any case, 5% of the average daily trading volume (number of shares) on the Taiwan Stock Exchange or the GreTai Securities Market for the ten consecutive trading days preceding the reporting day on which day the director, supervisor, manager or substantial shareholder or their respective spouse, minor child or nominee reports the intended share transfer to the Republic of China Securities and Futures Commission.

      These restrictions do not apply to block trading, auction sale, purchase by auction, after-hour trading and sales or transfers of our ADSs. However, these restrictions will apply to sales of common shares upon withdrawal.

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DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Shares

      ADSs are evidenced by certificates that are commonly known as American depositary receipts, or ADRs. We are selling our common shares in the form of ADSs evidenced by ADRs. Our depositary, The Bank of New York, will execute and deliver the ADRs. Each ADS will represent ownership interests in our common shares (or the right to receive ten common shares) which we will deposit with the custodian, The International Commercial Bank of China, in Taipei, Taiwan, Republic of China. Each ADS will also represent securities, cash or other property deposited with the depositary but not distributed to ADS holders. The depositary’s Corporate Trust Office is located at 101 Barclay Street, New York, New York 10286. Its principal executive office is located at The Bank of New York, One Wall Street, New York, New York 10286. The custodian’s office is located at 3rd Floor, #2, Chung-King South Road, Section 1, Taipei, Taiwan, Republic of China.

      You may hold ADS either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADR holder. This description assumes you hold your ADS directly. If you hold the ADRs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

      Because the depositary will actually hold the common shares, you must rely on it to exercise the rights of a shareholder. The obligations of the depositary are set out in a deposit agreement among us, the depositary and you, as an ADS holder.

      The deposit agreement and the ADS are generally governed by New York law. However, our obligations to our shareholders will continue to be governed by the laws of the Republic of China, which are different from the laws in the United States. In addition, we note that laws and regulations of the Republic of China may restrict the deposit and withdrawal of our common shares in or from the ADS facility. See “Foreign Investment and Exchange Controls in Taiwan — Depositary Receipts” beginning on page 157.

      The following is a summary of the deposit agreement. Because it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire agreement and the ADR. Directions on how to obtain copies of these are provided under the caption “Where You Can Find More Information” beginning on page 172.

Dividends and Other Distributions

  How will you receive dividends and other distributions on the shares?

      The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on common shares or other deposited securities, after deducting taxes, fees and expenses. You will receive these distributions in proportion to the number of common shares your ADRs represent.

•  Cash. The depositary will convert any cash dividend or other cash distribution we pay on the common shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any approval from the government is needed and can not be obtained, the agreement allows the depositary to distribute the NT dollars only to those ADS holders to whom it is possible to do so or, in its discretion, it will hold the NT dollars for and on your behalf it cannot convert for the account of the ADS holders who have not been paid. It will not invest the NT dollars and it will not be liable for any interest.

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•  Before making a distribution the depositary will deduct any withholding taxes that must be paid under Republic of China law. See “Taxation — Republic of China Taxation — Dividends” beginning on page 159. The depositary will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the NT dollars, you may lose some or all of the value of the distribution.

•  Common shares. The depositary may distribute new ADSs representing any common shares we distribute as a dividend or free distribution, if we furnish it promptly with satisfactory evidence that it is legal to do so. The depositary will only distribute whole ADSs. It will sell common shares which would require it to issue a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, subject to applicable laws and regulations, each ADS will also represent the new common shares.

•  Rights to receive additional common shares. If we offer holders of our securities any rights to subscribe for additional common shares or any other rights, the depositary may make these rights available to you. We must first instruct the depositary to do so and furnish it with satisfactory evidence that it is legal to do so. If we do not furnish this evidence and/or give these instructions, and the depositary decides it is practical to sell, the depositary will sell the rights that are not exercised or distributed. The proceeds of the sale will be distributed to holders as a cash distribution. The depositary may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

•  If the depositary makes rights available to you, it will exercise the rights and purchase the common shares on your behalf. The depositary will then deposit the common shares and issue ADSs to you. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.

•  U.S. securities laws may restrict the sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights. For example, you may not be able to trade the ADSs freely in the United States. In this case, the depositary may issue the ADSs under a separate restricted deposit agreement which will contain the same provisions as the agreement, except for changes needed to put the restrictions in place.

•  Other Distributions. The depositary will send to you anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed for and on your behalf, in which case ADSs will also represent the newly distributed property.

      The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, common shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, common shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our common shares or any value for them if it is illegal or impractical for us to make them available to you.

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Deposit, Withdrawal and Cancellation

  How does the depositary issue ADSs?

      Subject to the procedures required by Republic of China law described below, the depositary will issue ADSs if you or your broker deposit common shares or evidence of rights to receive common shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs at its office to the persons you request.

      Purchase by you of our shares on the Taiwan Stock Exchange or delivery by you of our common shares to the custodian for deposit in our ADS facility for issuances of additional ADSs against such deposits will be permitted only to the extent that (1) the total number of ADSs outstanding after an issuance may not exceed the number of issued ADSs previously approved by the Republic of China Securities and Futures Commission (plus any ADSs created by dividends or free distributions and exercise of pre-emptive rights) and (2) previously issued ADSs have been canceled and, while required by applicable law, the common shares represented by the ADSs have been sold on the Taiwan Stock Exchange. The depositary will be entitled to rely upon any information received by it from the Taiwan Stock Exchange with respect to the number of additional issuances which may be made.

  How do ADR holders cancel an ADS and obtain common shares?

      In order to withdraw our common shares represented by your ADSs, you will be required to pay to the depositary the fees for cancellation of ADSs and any charges and taxes, including stamp taxes or stock transfer taxes or fees, payable upon the transfer of our common shares. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit agreement.

      Upon surrender of ADRs and upon payment of the fees and expenses of the depositary and any taxes or other governmental charges, you may generally request the depositary to sell the common shares underlying your ADSs on your behalf. The depositary may require you to enter into a separate agreement to arrange the sale. These sales will be conducted through a securities company in the Republic of China on the Taiwan Stock Exchange. You assume the risk and expense of any sale.

      You will have the right to withdraw the common shares represented by your ADSs except:

•  for temporary delays that may arise because (1) the transfer books for our common shares or ADSs are closed or (2) our common shares are temporarily transfer restricted due to shareholders’ meeting or a payment of dividends;

•  when you or other ADR holders seeking to withdraw shares owe money to pay fees, taxes and similar charges; and

•  for restrictions imposed by any U.S. or foreign law or governmental regulations relating to ADRs or the withdrawal of the common shares represented by your ADSs.

      The deposit agreement may not be amended to impair your right to withdraw our common shares represented by your ADSs, except in order to comply with mandatory provisions of applicable law.

      If you wish to withdraw common shares from the ADS facility, you are required to appoint a local agent in the Republic of China and to open a securities trading account with a local brokerage firm and a bank account to remit funds, exercise stockholders’ rights. Without a securities trading account, you would not be able to hold or to sell or otherwise

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transfer our common shares on the Taiwan Stock Exchange. In addition, you are required to appoint a local bank to act as custodian and for handling confirmation and settlement of trades, safekeeping of securities or cash proceeds and declaration of information. You also would be required to appoint a tax guarantor who will act as guarantor for your tax payment obligations.

  Taiwan Disclosure Obligations

      We may have various disclosure and reporting obligations to the Republic of China government upon the withdrawal of ADSs if:

(a)	the person to be registered as our shareholder is our “related party” under Statement of Financial Accounting Standard No. 6 of the Republic of China and beneficially owns common shares withdrawn from the ADS facility; or
(b)	the person to be registered as the holder of the underlying common shares withdrawn against the surrender of the ADSs will then own a number of common shares withdrawn from the ADS facility exceeding 10% of the common shares represented by ADSs.

      Because of these obligations, we may ask the depositary to ask you to disclose certain information to us in accordance with the deposit agreement, including the name of the beneficial owner of the ADSs delivered for cancellation, and ask you to provide proof of identity and genuineness of any signature and other documents before it will cancel your ADSs. The withdrawal of shares represented by your ADSs may be delayed until the depositary receives the information and proof so requested and satisfactory evidence of your compliance with all laws and regulations. The information you are required to provide may include the name and nationality of the beneficial owner and the number of shares the beneficial owner is withdrawing or has withdrawn in the past.

Voting Rights

      You may direct the exercise of voting rights with respect to the common shares represented by ADSs only in accordance with the provisions of the deposit agreement as described below and applicable Republic of China law. See “Risk Factors — Risks Relating to Ownership of Our ADSs — You will be more restricted in your ability to exercise voting rights than the holders of our common shares, which may diminish your influence over our corporate affairs and may reduce the value of your ADSs” beginning on page 15. You will not have the same voting rights as the holders of our common shares, which may affect the value of your ADSs”. If you wish to withdraw the common shares, you must appoint a local agent and open a securities trading account with a local brokerage firm and a bank account as discussed above. Even if you do all this, however, you might not have enough time to register your common shares for voting purposes before the shareholder register is closed. See “Description of Share Capital — Meetings of Shareholders” beginning on page 137 and “— Register of Shareholders and Record Dates” beginning on page 138.

      Except as described below, you will not be able to exercise voting rights attaching to the common shares represented by the ADSs on an individual basis. Under the deposit agreement, a shareholder’s voting rights attaching to shareholdings in a Republic of China company must, as to all matters subject to a vote of shareholders (other than the election of directors and supervisors), be exercised as to all shares held by the shareholder in the same manner. Accordingly, the voting rights attaching to the common shares represented by ADSs must be exercised as to all matters subject to a vote of shareholders by the depositary or its nominee, who represents all holders of ADSs, collectively in the same

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manner, except in the case of an election of directors and supervisors. Directors and supervisors are elected by cumulative voting.

      In the deposit agreement, you will appoint the depositary as your representative to exercise the voting rights with respect to the common shares represented by your ADSs.

      We will provide the depositary with copies (including English translations) of notices of meetings of our shareholders and the agenda of these meetings. These materials will contain an indication of the number of directors or supervisors to be elected if an election of directors or supervisors is to be held at the meeting. The depositary will also mail to holders a voting instruction form. In order to be valid, the holder of ADSs must complete, sign and return to the depositary the voting instruction form by a date specified by the depositary. The number of directors or supervisors to be elected may change after the depositary has mailed the voting instruction form to you. If a change were to occur, the depositary would be unable to follow your exact voting instructions and may calculate your votes according to procedures not inconsistent with the provisions of the deposit agreement.

      We cannot assure you that you will receive the materials in time to ensure that you can instruct the depositary to vote the common shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if the common shares represented by your ADSs are not voted as you requested.

      Subject to the provisions described in the second succeeding paragraph, which will apply to the election of directors and supervisors, if persons together holding at least 51% of the ADSs outstanding at the relevant record date instruct the depositary to vote in the same manner in respect of one or more resolutions to be proposed at the meeting (other than the election of directors or supervisors), the depositary will notify the instructions to our chairman or such person as he may designate. The depositary will appoint the chairman or his designated person to serve as your designated representative and that of the depositary’s or its nominee. The designated representative will attend the meeting and vote all the common shares represented by ADSs in the manner so instructed by you.

      If, for any reason, the depositary has not by the date specified by it received instructions from persons together holding at least 51% of all the ADSs outstanding at the relevant record date to vote in the same manner in respect of any resolution specified in the agenda for a meeting (other than for the election of directors or supervisors), then you will be deemed to have instructed the depositary or its nominee to authorize and appoint the designated representative as your representative and that of the depositary’s or its nominee to attend the meeting and vote all the common shares represented by all ADSs as the designated representative deems appropriate in his sole discretion with respect to the resolution or resolutions, which may not be in your interests. However, no authorization will be given with respect to any matter as to which the designated representative informs the depositary that he does not wish to be so authorized, in which event the depositary will not vote at the relevant meeting. The depositary will, however, take such action as is necessary to cause all the common shares represented by ADSs to be counted for the purpose of satisfying applicable quorum requirements.

      The depositary will notify the designated representative of the instructions for the election of directors and supervisors received from you and appoint the designated representative as your representative and that of the depositary’s or its nominee to attend any meeting and vote the common shares represented by ADSs as to which the depositary has received instructions from you for the election of directors and supervisors, subject to

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any restrictions imposed by the law of the Republic of China and our articles of incorporation. If, by the date specified by the depositary, you have not delivered instructions to the depositary, you will be deemed to have instructed the depositary to authorize and appoint the designated representative as your representative and that of the depositary’s or its nominee to attend the meeting and vote, at his sole discretion, all the common shares represented by ADSs as to which the depositary has not received instructions from you for the election of directors and supervisors as the designated representative deems appropriate, which may not be in your best interests. However, no authorization will be given with respect to any election of directors or supervisors as to which the designated representative informs the depositary that he does not wish to be so authorized, in which event the depositary will attend such meeting and will vote those common shares represented by the ADSs as to which it has received instructions from you for the election of directors and supervisors in the manner so instructed. The depositary will not vote at the relevant meeting any common shares evidenced by ADSs if the depositary has not received instructions from you for the election of directors and supervisors. However, the depositary will take all necessary actions to cause all common shares evidenced by the ADSs to be counted for the purpose of satisfying quorum requirements.

      By continuing to hold ADSs or any interest in the ADSs, you will be deemed to have agreed to the voting provisions set forth in the deposit agreement, as these provisions may be amended from time to time.

      The depositary will not, and the depositary will endeavor to ensure that the custodian and their respective nominees (including the designated representative) do not (except as described above), exercise any discretion as to voting, nor vote or attempt to exercise the right to vote that attaches to deposited securities, other than in accordance with instructions received as herein provided.

      Beneficial owners of ADSs are entitled to exercise their voting rights only through the procedures applicable to the representative holder of the ADSs in which they have a beneficial interest.

      When exercising voting rights on a cumulative basis for the election of directors and supervisors, the aggregate votes to be cast for each candidate will be reduced by the applicable amount. You may vote the common shares that you have withdrawn and transferred on our register of shareholders. However, you may not receive sufficient advance notice of our shareholder meetings to enable you to withdraw your shares and vote at such meetings.

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Fees and Expenses

ADS holders must pay:	For:
US$5.00 (or less) per 100 ADSs (or portion thereof)	• Each issuance of an ADS, including as a result of a distribution of common shares or rights or other property
	• Each cancellation of an ADS, including if the deposit agreement terminates
US$0.02 (or less) per ADS (or portion thereof)	• Any cash payment
Registration or transfer fees	• Transfer and registration of common shares on the common shares register of the registrar in the Republic of China from your name to the name of the depositary or its agent when you deposit or withdraw common shares
Expenses of the depositary	• Conversion of NT dollars to U.S. dollars
	• Cable, telex, and facsimile transmission expenses as are expressly provided in the deposit agreement
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or common share underlying an ADS	• As necessary

Payment of Taxes

      The depositary may deduct the amount of any taxes owed from any payment to you. It may also sell deposited securities, by public or private sale, subject to applicable laws and regulations, to pay any taxes owed. You will remain liable if the proceeds of the sale are not enough to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any proceeds, or send to you any property, remaining after it has paid the taxes.

Reclassifications, Recapitalizations and Mergers

If we:

Then:

• Change the nominal or par value of our common shares • Reclassify, split up or consolidate any of the deposited securities • Distribute securities on the common shares that are not distributed to you • Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action

The cash, common shares or other securities received by the depositary will become deposited securities. Subject to applicable laws and regulations, each ADS will automatically represent its equal common share of the new deposited securities. The depositary may, and will if we ask them to, distribute some or all of the cash, common shares or other securities it received. Subject to applicable laws and regulations, it may also issue new ADSs or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

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Amendment and Termination

  How may the depositary agreement be amended?

      We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or certain expenses of the depositary, or prejudices an important right of ADS holders, it will only become effective 30 days after the depositary notifies you of the amendment. In no event may any amendment impair your right to surrender your ADRs and receive the common shares represented thereby, except in order to comply with mandatory provisions of applicable law. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADSs and the agreement as amended.

      How may the depositary agreement be terminated?

      The depositary will terminate the deposit agreement if we ask it to do so. The depositary may also terminate the agreement if the depositary has told us that it would like to resign and we have not appointed a new depositary bank within 90 days. In both cases, the depositary must notify you at least 30 days before termination.

      After termination, the depositary and its agents will be required to do only the following under the agreement:

•  advise you that the agreement is terminated;

•  collect distributions on the deposited securities; and

•  deliver common shares and other deposited securities upon cancellation of ADSs.

      One year after termination, the depositary will, if practical, sell any remaining deposited securities by public or private sale, subject to applicable laws and regulations. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the agreement, for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash and with respect to indemnification. After termination, our only obligations will be with respect to indemnification and to pay certain amounts to the depositary.

Limitations On Obligations and Liability to ADS Holders

Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs

      The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:

•  are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;

•  are not liable if either of us is prevented or delayed by law or circumstances beyond our control from performing our obligations under the deposit agreement;

•  are not liable if either of us exercises discretion permitted under the deposit agreement;

•  have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other party; and

•  may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party.

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      In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

  Requirements for Depositary Actions

      Before the depositary will issue or register transfer of an ADS, make a distribution on an ADS, or permit withdrawal of common shares, the depositary may require:

•  payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any common shares or other deposited securities;

•  production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

•  compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

      The depositary may refuse to deliver, transfer or register transfers of ADSs generally when the transfer books of the depositary, our company or the registrar in Taiwan are closed or at any time if the depositary or our company thinks it advisable to do so.

Pre-Release of ADSs

      In certain circumstances, subject to the provisions of the deposit agreement and to the extent permitted by any applicable law or regulation, the depositary may issue ADSs before deposit of the underlying common shares. This is called a pre-release of the ADS. To the extent permitted by law, the depositary may also deliver common shares upon cancellation of pre-released ADSs, even if the ADSs are cancelled before the pre-release transaction has been closed out. A pre-release is closed out as soon as the underlying common shares are delivered to the depositary. The depositary may receive ADSs instead of common shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions:

•  before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the depositary in writing that it or its customer owns the common shares or ADSs to be deposited;

•  the pre-release must be fully collateralized with cash, U.S. government securities or such other collateral that the depositary considers appropriate; and

•  the depositary must be able to close out the pre-release on not more than five business days’ notice.

      In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.

Ownership Restrictions

      We may restrict deposits of our common shares where such deposit might result in ownership or beneficial ownership of our common shares that exceed the limits under applicable law or our articles of incorporation. We may instruct the depositary to take action with respect to the ownership interest of any holder in excess of any such limitation, including but not limited to refusing to accept common shares for deposit from a holder in excess of the applicable limitation if a deposit of common shares would result in a violation of the applicable limitations, to the extent such action is permitted by applicable law.

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THE SECURITIES MARKETS OF TAIWAN

      We have extracted from publicly available documents the information presented in this section which have not been prepared or independently verified by the underwriters, the depositary or any of their respective affiliates or advisors in connection with this offering.

      In September 1960, the Republic of China Securities and Exchange Commission was established to supervise and control all aspects of the existing domestic securities market in Taiwan, and the Taiwan Stock Exchange began to take shape soon thereafter. In the 1970s and the early 1980s, the Republic of China government implemented a number of steps designed to upgrade the quality and importance of the securities markets, such as encouraging listing on the Taiwan Stock Exchange and establishing the GreTai Securities Market. In the mid-1980s, the Republic of China government began to revise its laws and regulations in a manner designed to facilitate the gradual internationalization of the Taiwan securities markets. In 1997, the Republic of China Securities and Exchange Commission was renamed the Republic of China Securities and Futures Commission.

The Taiwan Stock Exchange

      In 1961, the Securities and Futures Commission established the Taiwan Stock Exchange to provide a marketplace for securities trading. The Taiwan Stock Exchange is a corporation owned by government-controlled entities and private banks and enterprises. The Taiwan Stock Exchange is independent of entities transacting business through it, each of which pays a user’s fee. Subject to limited exceptions, all transactions in listed securities by brokers, traders and securities firms must be made through the Taiwan Stock Exchange.

      The Taiwan Stock Exchange commenced operations in 1962. During the early 1980’s, the Securities and Futures Commission actively encouraged new listings on the Taiwan Stock Exchange, and the number of listed companies grew from 119 in 1983 to 637 as of June 23, 2003. As of June 23, 2003, the market capitalization of companies listed on the Taiwan Stock Exchange was approximately NT$10.0 trillion.

      Historically, Taiwan companies have listed only shares and bonds on the Taiwan Stock Exchange. However, the Securities and Futures Commission has encouraged companies to list other types of securities. In 1988, the Securities and Futures Commission permitted the issuance of Taiwan’s first exchangeable bonds. Since 1989, there have been offerings of domestic convertible bonds and convertible preferred shares. In addition, beneficiary units evidencing beneficiary interests in closed-end investment funds and bonds issued by Asian Development Bank and other supra-national financial institutions are also listed on the Taiwan Stock Exchange or traded on the GreTai Securities Market.

      Currently only four non-Taiwan companies are listed on the Taiwan Stock Exchange through the use of depositary receipts. The Securities and Futures Commission’s regulations, however, permit foreign issuers to list their equity securities directly on the Taiwan Stock Exchange or through the use of depositary receipts. The Taiwan Stock Exchange requirements for listing are based on:

•  length of time the company has been in business;

•  amount of capital;

•  profitability; and

•  shareholder concentration.

      However, special listing criteria apply to technology companies and key businesses engaging in national economic development.

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      We, as a public company in Taiwan, are obligated to make the following reports to the Securities and Futures Commission and the Taiwan Stock Exchange, including without limitation:

•  regular reports regarding monthly sales revenues; quarterly, semi-annual and annual financial information; public financial forecasts in the event of rights offering; annual reports; minutes of shareholders’ meetings; regular reports regarding solicitations of proxies; the execution of internal audits; and statements of internal controls;

•  special reports regarding events which have had a significant impact on shareholders’ rights or the price of our securities; resolutions of our board of directors related to a merger; prospectuses for approved issuances of securities; material changes that have been made regarding cash injections and corporate bond issuances; financial forecasts; approvals of changes of accounting principles; and

•  special reports regarding the issuance of securities; details of the issuance of overseas depositary receipts; revisions to procedures of acquiring or selling assets; and revisions to operating procedures for making third-party loans.

The GreTai Securities Market

      To complement the Taiwan Stock Exchange, the GreTai Securities Market was established in September 1982 on the initiative of the Securities and Futures Commission to encourage trading of securities of companies who do not qualify for listing on the Taiwan Stock Exchange. As of June 23, 2003, 423 companies had equity securities listed on the GreTai Securities Market. As of June 23, 2003, the total market capitalization of companies with equity securities listed on the GreTai Securities Market was approximately NT$926 billion. In addition, the Emerging Stock Trading System of the GreTai Securities Market was established on January 1, 2002 on the initiative of the Securities and Futures Commission to encourage trading of securities of publicly listed companies that do not qualify for trading on the Taiwan Stock Exchange or the GreTai Securities Market.

Taiwan Stock Exchange Index

      The Taiwan Stock Exchange Index is calculated on the basis of a wide selection of listed shares weighted according to the number of shares outstanding. This weighted average method is also used for the Standard and Poor’s Index in the United States and the Nikkei Stock Average in Japan. The Taiwan Stock Exchange Index is compiled by dividing the market value by the base day’s total market value for the index shares. The Taiwan Stock Exchange Index is the oldest and most widely quoted market index in Taiwan.

      The weighting of stocks in the index is fixed as long as the number of shares outstanding remains constant. When the total number of shares outstanding changes, the weight of each stock is adjusted. Stock splits and stock dividends are adjusted automatically. Cash dividends are not included in the calculation.

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      The following table shows for the periods indicated information relating to the Taiwan Stock Exchange Index.

	Number of
	Listed
	Companies
	at the		Trading						Index at
Period ended December 31,	Period End		values		Index High		Index Low		Period End
			(in NT$
			billions)
1990		199		19,031.3		12,495.34		2,560.47		4,530.16
1991		221		9,682.7		6,305.22		3,316.26		4,600.67
1992		256		5,917.1		5,391.63		3,327.67		3,377.06
1993		285		9,056.7		6,070.56		3,135.56		6,070.56
1994		313		18,812.1		7,183.75		5,194.63		7,124.66
1995		347		10,151.5		7,051.49		4,503.37		5,173.73
1996		382		12,907.6		6,982.81		4,690.22		6,933.94
1997		404		37,241.2		10,116.84		6,820.35		8,187.27
1998		437		29,619.0		9,277.09		6,251.38		6,418.43
1999		462		29,291.5		8,608.91		5,474.79		8,448.84
2000		531		30,526.6		10,202.20		4,614.63		4,739.09
2001		584		18,354.9		6,104.24		3,446.26		5,551.24
2002		638		21,874.0		6,462.30		3,850.04		4,432.45
2003 (through June 23, 2003)		637		7,831.0		5,078.80		4,139.50		4,921.72

Sources: Status of Securities Listed on Taiwan Stock Exchange.

      As indicated above, the performance of the Taiwan Stock Exchange has in recent years been characterized by extreme price volatility.

Price Limits, Commissions, Transaction Tax and Other Matters

      The Taiwan Stock Exchange has placed limits on block trading and on the range of daily price movements. Transactions that involve 500 trading lots, that is 500,000 shares, or more must be registered and executed under Taiwan Stock Exchange block trade guidelines. Fluctuations in the price of securities traded on the Taiwan Stock Exchange is restricted to 7% above and below the previous day’s closing price in the case of equity securities, and 5% in the case of debt securities. However, these restrictions have been modified from time to time by the Ministry of Finance based on market conditions.

      Brokerage commission can be in any rates, as reported to the Taiwan Stock Exchange, not exceeding 0.1425% of the transaction price.

      A securities transaction tax of 0.3% of the transaction price is payable by the seller of equity securities and a tax of 0.1% of the transaction price is payable by the seller of debt securities other than government bonds. These securities transaction taxes are withheld at the time of the transaction. In addition, according to the amended Statute of Upgrading Industries, effective on February 1, 2002, no securities transaction tax will be imposed on the transfer of financial debentures and corporate bonds. These securities transaction taxes are exempted until December 31, 2009.

      Sales of shares of listed companies on the Taiwan Stock Exchange are generally sold in “round lots” of 1,000 shares. Investors who desire to sell less than 1,000 shares of a listed company occasionally experience delays in making these sales.

National Financial Stabilization Fund

      In response to recent declines and volatility in the securities markets in Taiwan, the government recently formed the National Financial Stabilization Fund which has purchased and may from time to time purchase shares of Taiwan companies to support these markets.

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The details of the transactions of the National Financial Stabilization Fund have not been made public. In addition, the government’s Labor Insurance Fund and other funds associated with the government have in the past purchased, and may from time to time purchase, shares of Taiwan companies on the Taiwan Stock Exchange or other markets.

      In connection with the establishment of the National Financial Stabilization Fund, the Ministry of Transportation and Communications, at the request of the government, has pledged 2.8 billion of our common shares as security to support borrowings by the National Financial Stabilization Fund from a syndicate of commercial banks in Taiwan. Ownership of these shares, which represent approximately 29% of our outstanding common shares, may be forfeited to those banks if those secured loans are not repaid.

Regulation and Supervision

      The Securities and Futures Commission has extensive regulatory authority over public companies. Public companies are generally required to obtain approval from, or registration with, the Securities and Futures Commission for all securities offerings. The Securities and Futures Commission requires periodic reporting of financial and operating information by all public companies. In addition, the Securities and Futures Commission establishes standards for financial reporting and carries out licensing and supervision of participants in the Taiwan securities market.

      The Securities and Futures Commission has responsibility for implementing the Securities and Exchange Law and for overall administration of governmental policies in the Taiwan securities market. It has extensive regulatory authority over the offering, issuing and trading of securities. In addition, the Securities and Exchange Law specifically empowers the Securities and Futures Commission to promulgate necessary rules.

      The Securities and Exchange Law prohibits market manipulation. For example, it permits an issuer to recover short-term trading profits made through purchases and sales within six months by directors, managerial personnel, supervisors, as well as spouses, minor children and nominees of these parties, and stockholders together with their spouses, minor children and nominees holding 10% or more stocks of the issuer. The Securities and Exchange Law prohibits trading by “insiders” based on non-public information that materially affects share price movement. “Insiders” include:

•  directors, supervisors, managers, as well as spouses, minor children and nominees of these parties, and stockholders together with their spouses, minor children and nominees holding 10% or more of the issuing company;

•  any person who has learned material, non-public information due to an occupational or controlling relationship with our issuing company, and

•  any person who has learned material, non-public information from any of the above.

      Sanctions include imprisonment. In addition, damages may be awarded to persons injured by the transaction.

      The Securities and Exchange Law also imposes criminal liability on certified public accountants and lawyers who intentionally make false certifications in their examination and audit of an issuer’s contracts, reports and other documents related to securities transactions. The Securities and Futures Commission regulations require that financial reports of listed companies be audited by accounting firms consisting of at least three certified public accountants and be signed by at least two certified public accountants.

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      In addition, the Securities and Exchange Law provides for:

•  civil liability for material misstatements or omissions made by issuers; and

•  regulation of tender offers.

      The Securities and Futures Commission does not have criminal or civil enforcement powers under the Securities and Exchange Law. Criminal actions may be pursued only by the government prosecutors. Civil actions may only be brought by plaintiffs who assert that they have suffered damages. The Securities and Futures Commission is empowered to curb abuses and violations of laws and regulations only through administrative measures.

      In addition to providing a market for securities trading, the Taiwan Stock Exchange reviews applications by Taiwan issuers to list securities on the Taiwan Stock Exchange. If issuers of listed securities violate laws and regulations or encounter significant difficulties, the Taiwan Stock Exchange may, with the approval of the Securities and Futures Commission, delist securities of these issuers.

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FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN TAIWAN

      We have extracted from publicly available documents the information presented in this section which have not been prepared or independently verified by the underwriters, the depositary or any of their respective affiliates or advisors in connection with this offering. Please note that citizens of the People’s Republic of China and entities organized in the People’s Republic of China are subject to special Republic of China laws, rules and regulations, which are not discussed in this section.

General

      Historically, foreign investments in the securities market of Taiwan were restricted. However, commencing in 1983, the Taiwan government has from time to time enacted legislation and adopted regulations to make foreign investment in the Taiwan securities market possible. Initially, only overseas investment trust funds of authorized securities investment trust enterprises established in Taiwan were permitted to invest in the Taiwan securities market. Since January 1, 1991, qualified foreign institutional investors are allowed to make investments in the Taiwan listed securities market. Since March 1, 1996, overseas Chinese, non-resident foreign institutional and individual investors (other than qualified foreign institutional investors), called “general foreign investors”, are permitted to make direct investments in the Taiwan listed securities market.

Qualified Foreign Institutional Investors

      The Executive Yuan, the cabinet of the Republic of China government, has approved guidelines for direct investment in listed securities in Taiwan or traded on the GreTai Securities Market by qualified foreign institutional investors. Qualified foreign institutional investors include:

•  banks that hold securities assets of at least US$100 million;

•  insurance companies that hold securities assets of at least US$100 million;

•  fund management institutions that manage securities assets of at least US$100 million;

•  offshore fund management companies of which at least 50% owned by a Taiwan securities investment trust enterprise, provided that the funds to be invested are not derived from sources in Taiwan or Mainland China or owned by these offshore fund management companies;

•  general securities firms that have a net worth of at least US$50 million;

•  offshore subsidiary securities firms that are at least 50% owned by a Taiwan securities firm, or other securities firms that are wholly owned by these offshore subsidiary securities firms;

•  offshore subsidiary securities firms that are wholly owned by a Taiwan securities firm, or other securities firms that are at least 51% owned by these offshore subsidiary securities firms;

•  foreign government-owned investment institutions, provided that all of the funds to be invested are owned by the foreign government;

•  pension funds;

•  mutual funds, unit trusts or investment trusts that have assets of at least US$100 million;

•  trust companies that hold securities assets in trust of at least US$100 million;

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•  academic or charitable institutions, according to its articles of incorporation may invest their funds, provided those investments are managed by a third-party manager; and

•  any other professional institutional investors that hold securities or assets of at least US$100 million.

      Each qualified foreign institutional investor wishing to invest directly in the Taiwan securities market is required to apply for an investment permit from the Securities and Futures Commission. If the investment amount exceeds US$50 million, an approval from the Central Bank of China is also required. The application to the Securities and Futures Commission requires among others:

•  the appointment of a local agent and custodian;

•  proof of qualification;

•  a copy of the custodian contract; and

•  an affidavit to the Securities and Futures Commission certifying that the foreign institutional investors will not enter into any quota-sharing arrangement with other foreign investors, that their funds do not come from Mainland China or Taiwan, and that the application and investment are under single investment status.

      Generally, qualified foreign institutional investors who receive a permit may invest up to US$3 billion and are required to remit the full amount into Taiwan within two years of receiving the investment permit. Capital remitted into Taiwan by the qualified foreign institutional investors may be repatriated at any time. The repatriated capital may also be returned to Taiwan at any time without the approval of the Securities and Futures Commission, as long as its aggregate inward remittance after netting off its aggregate outward remittance does not exceed the investment amount approved by the Securities and Futures Commission and the Central Bank of China, if applicable. Capital gains and income on investments may also be repatriated at any time.

General Foreign Investors

      General foreign investors meeting qualifications set by the Securities and Futures Commission may generally invest in Taiwan Stock Exchange-listed securities or securities traded on the Over-the-Counter Securities Exchange up to a limit of US$50 million if they are institutional investors and US$5 million if they are individual investors after obtaining approval issued by Taiwan Stock Exchange.

Foreign Investment Approval

      Other than:

•  qualified foreign institutional investors;

•  general foreign investors; and

•  investors in overseas convertible bonds and depositary receipts,

foreign investors who wish to make direct investments in the shares of Taiwan companies may submit a “foreign investment approval” application to the Investment Commission of the Ministry of Economic Affairs of Taiwan or other government authority for enjoyment of benefits granted under the Regulations Governing Investments by Foreigners. The Investment Commission or other government authority reviews each foreign investment approval application and approves or disapproves the application after consultation with other governmental agencies. Any non-Taiwan person possessing a foreign investment approval may repatriate annual net profits and interests and cash dividends attributable to an approved investment. Stock dividends, investment capital and capital gains attributable to

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the investment may be repatriated with approval of the Investment Commission or other government authority.

      In addition to the general restrictions against direct investment by non-Taiwan persons in Taiwan companies, non-Taiwan persons are currently prohibited from investing in prohibited industries in Taiwan under the Negative List promulgated by the Executive Yuan from time to time. The prohibition on direct foreign investment in the prohibited industries in the Negative List is absolute with the consequence of certain specific exemption from the application of the Negative List. Under the Negative List, some other industries are restricted so that non-Taiwan persons may directly invest only up to a specified level and with the specific approval of the relevant authority which is responsible for enforcing the legislation which the negative list is intended to implement. The telecommunication industry is a restricted industry under the Negative List.

Depositary Receipts

      In April 1992, the Securities and Futures Commission began allowing Taiwan companies listed on the Taiwan Stock Exchange, with the prior approval of the Securities and Futures Commission, to sponsor the issuance and sale of depositary receipts evidencing depositary shares. In December 1994, the Republic of China Ministry of Finance began allowing companies whose shares are traded on the GreTai Securities Market also to sponsor the issuance and sale of depositary receipts evidencing depositary shares representing shares of its capital stock. Approvals for these issuances are still required.

      Commencing three months (if the deposited shares are new shares) or immediately (if the deposited shares are existing shares) after the issuance of a depositary share, a holder of the depositary receipt evidencing the depositary shares may request the depositary issuing the depositary share to cause the underlying shares to be sold in Taiwan and to distribute the proceeds of the sale to or to withdraw the shares and deliver the shares to the depositary receipt holder. A citizen of the People’s Republic of China is not permitted to withdraw and hold our shares.

      A depositary receipt holder wishing to withdraw shares represented by depositary receipts is required to appoint a qualified local agent to, among other things, open a securities trading account with a local securities brokerage firm, remit funds and exercise shareholders’ rights. In addition, the withdrawing holder is also required to appoint a custodian bank to hold the securities and cash proceeds in safekeeping, make confirmations, settle trades and report all relevant information. Without making this appointment and the opening of accounts, the withdrawing holder would be unable to subsequently hold or transfer the shares withdrawn from a depositary receipt facility on the Taiwan Stock Exchange or otherwise. The withdrawing holder is also generally required to appoint a tax guarantor as guarantor for the withdrawing depositary receipt holder’s Republic of China tax filing and payment obligations.

      No deposits of shares may be made in a depositary receipt facility and no depositary shares may be issued against deposits without specific Securities and Futures Commission approval, unless they are:

(1)	stock dividends,
(2)	free distributions of shares;
(3)	due to the exercise by the depositary receipt holder preemptive rights in the event of capital increases for cash; or
(4)	if permitted under the deposit agreement and custody agreement, due to the direct purchase by depositary receipt holders of shares or purchase through the

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depositary on the Taiwan Stock Exchange or the GreTai Securities Market for deposit in the depositary receipt facility. In this event, the total number of depositary receipts outstanding after an issuance cannot exceed the number of issued depositary receipts previously approved by the Securities and Futures Commission in connection with the offering plus any ADSs issued pursuant to the events described in (1), (2) and (3) above. These issuances may only be made to the extent that previously issued depositary receipts withdrawn by non-Republic of China holders have been canceled and the shares have been sold on the Taiwan Stock Exchange or the GreTai Securities Market.

      An ADS holder or the depositary, without obtaining further approvals from the Central Bank of China or any other governmental authority or agency of the Republic of China, may convert NT dollars into other currencies, including U.S. dollars, in respect of:

•  the proceeds of the sale of common shares represented by ADSs or received as share dividends with respect to the common shares and deposited into the depositary receipt facility; and

•  any cash dividends or distributions received from the common shares.

      In addition, the depositary may also convert into NT dollars incoming payments for purchases of common shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the common shares underlying your ADSs and become a holder of our common shares, you may convert into NT dollars subscription payment for rights offerings. The depositary may be required to obtained foreign exchange payment approval from the Central Bank of China on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights of new common shares. Although it is expected that the Central Bank of China will grant approval as a routine matter, required approvals may not be obtained in a timely manner, or at all.

Exchange Controls

      Taiwan’s Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle foreign exchange transactions by the Ministry of Finance and by the Central Bank of China. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters. All foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign exchange banks.

      Aside from trade-related foreign exchange transactions, Taiwan companies and residents may remit to and from Taiwan foreign currencies of up to US$50 million (or its equivalent) and US$5 million, (or its equivalent) respectively in each calendar year. These limits apply to remittances involving a conversion between New Taiwan dollars and U.S. dollars or other foreign currencies. A requirement is also imposed on all private enterprises to register all medium and long-term foreign debt with the Central Bank of China.

      In addition, a foreign person without an alien resident card or an unrecognized foreign entity may remit to and from Taiwan foreign currencies of up to US$100,000 per remittance if required documentation is provided to Taiwan authorities. This limit applies only to remittances involving a conversion between New Taiwan dollars and U.S. dollars or other foreign currencies.

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TAXATION

Republic of China Taxation

      This section constitutes the opinion of Baker & McKenzie, our Republic of China counsel. The discussion describes the principal Republic of China tax consequences of the ownership and disposition of ADSs representing common shares and of common shares. It applies to you only if you are:

•  an individual who is not an citizen of the Republic of China, who owns ADSs and who is not physically present in Taiwan for 183 days or more during any calendar year; or

•  a corporation or a non-corporate body that is organized under the laws of a jurisdiction other than the Republic of China for profit-making purposes and has no fixed place of business or other permanent establishment in Taiwan.

      You should also consult your tax advisors concerning the Republic of China tax consequences of owning ADSs.

Dividends

      Dividends declared by us out of our retained earnings and distributed to you are subject to Republic of China withholding tax, currently at the rate of 20%, on the amount of the distribution in the case of cash dividends or on the par value of the common shares in the case of stock dividends. However, a 10% Republic of China retained earnings tax paid by us on our undistributed after-tax earnings, if any, would provide a credit of up to 10% of the gross amount of any dividends declared out of such earnings that would reduce the 20% Republic of China tax imposed on these distributions.

      Share dividends paid by us out of our capital reserves are not subject to Republic of China withholding tax.

Capital gains

      Gains from the sale of property in the Republic of China are generally subject to Republic of China income tax. However, under current Republic of China law, capital gains on securities transactions (including sale of common stock) are exempt from income tax.

      Sales of ADRs by you are regarded as transactions relating to property located outside the Republic of China and thus any gains derived therefrom are currently not subject to Republic of China income tax.

Subscription rights

      Distributions of statutory subscription rights for common shares in compliance with Republic of China law are not subject to any Republic of China tax. Proceeds derived from sales of statutory subscription rights evidenced by securities are exempted from income tax but are subject to securities transaction tax at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory subscription rights which are not evidenced by securities are subject to capital gains tax at the rate of:

•  35% of the gains realized if you are a natural person; or

•  25% of the gains realized if you are an entity that is not a natural person.

      Subject to compliance with Republic of China law, we, at our sole discretion, can determine whether statutory subscription rights shall be evidenced by issuance of securities.

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  Securities transaction tax

      A securities transaction tax, at the rate of 0.3% of the gross amount received, payable by the seller will be withheld upon a sale of common shares in Taiwan. Transfers of ADSs are not subject to Republic of China securities transaction tax. According to a letter issued by the Ministry of Finance of the Republic of China in 1996, withdrawal of common shares from the deposit facility will not be subject to Republic of China securities transaction tax.

  Estate and gift tax

      Republic of China estate tax is payable on any property within Taiwan of a deceased who is a non-resident individual, and Republic of China gift tax is payable on any property within Taiwan donated by any such person. Estate tax is currently payable at rates ranging from 2% of the first NT$600,000 to 50% of amounts over NT$100,000,000. Gift tax is payable at rates ranging from 4% of the first NT$600,000 to 50% of amounts over NT$45,000,000. Under Republic of China estate and gift tax law, common shares issued by Taiwan companies are deemed located in Taiwan regardless of the location of the owner. It is not clear whether the ADSs will be regarded as property located in Taiwan under Republic of China estate and gift tax law.

  Tax treaty

      The Republic of China does not have an income tax treaty with the United States. On the other hand, the Republic of China has income tax treaties with Indonesia, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, Macedonia, Swaziland, the Netherlands, United Kingdom and Gambia, which may limit the rate of Republic of China withholding tax on dividends paid with respect to common shares in Taiwan companies. It is unclear whether if you hold ADSs, you will be considered to hold common shares for the purposes of these treaties. Accordingly, if you may otherwise be entitled to the benefits of the relevant income tax treaty, you should consult your tax advisors concerning your eligibility for the benefits with respect to the ADSs.

U.S. Federal Income Tax Considerations For U.S. Persons

      The following is a summary of the material U.S. federal income tax consequences for beneficial owners of our shares or ADSs that purchase such shares or ADSs in connection with this offering, that hold the shares or ADSs as capital assets, and that are U.S. holders and non-residents of the Republic of China. You are a U.S. holder if you are:

•  a citizen or resident of the United States;

•  a corporation or partnership created or organized in or under the laws of the United States or any political subdivision thereof;

•  an estate the income of which is subject to U.S. federal income taxation regardless of its source;

•  a trust that is subject to the supervision of a court within the United States and the control of one or more U.S. persons; or

•  a trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

      This summary is based on current law, which is subject to change, perhaps retroactively. It is for general purposes only and you should not consider it to be tax advice. In addition, it is also based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms. This summary does not represent a detailed description of all the

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federal income tax consequences to you in light of your particular circumstances. In addition, it does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws including if you are:

•  a dealer in securities or currencies;

•  a trader in securities if you elect to use a mark-to-market method of accounting for your securities holdings;

•  a financial institution or an insurance company;

•  a tax-exempt organization;

•  a person liable for alternative minimum tax;

•  a person holding shares as part of a hedging, integrated or conversion transaction, constructive sale or straddle;

•  a person owning, actually or constructively, 10% or more of our voting stock; or

•  a U.S. holder whose “functional currency” is not the United States dollar.

      We cannot assure you that a later change in law will not alter significantly the tax considerations that we describe in this summary.

      If a partnership holds our shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our shares or ADSs, you should consult your tax advisor.

      You should consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of the ownership and disposition of the shares or ADSs, as well as the consequences to you arising under the laws of any other taxing jurisdiction.

      In general, for U.S. federal income tax purposes, a U.S. person who is the beneficial owner of an ADS will be treated as the owner of the shares underlying its ADS. However, the United States Treasury has expressed concerns that parties involved in transactions in which depositary shares are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by the holders of ADSs. Accordingly, the analysis of the creditability of Republic of China taxes described below could be affected by future actions that may be taken by the United States Treasury.

  Taxation of Dividends

      The amount of distributions (other than certain pro rata distributions of shares to all shareholders) you receive on your shares or ADSs, including net amounts withheld in respect of Republic of China withholding taxes, will generally be treated as dividend income to you if the distributions are made from our current and accumulated earnings and profits as calculated according to U.S. federal income tax principles. These amounts will be includible in your gross income as ordinary income on the day you actually or constructively receive the distributions, which in the case of an ADS will be the date received by the depositary. You will not be entitled to claim a dividends received deduction with respect to distributions you receive from us.

      With respect to U.S. holders who are individuals, certain dividends received from a foreign corporation before January 1, 2009, on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States may be subject to reduced rates of taxation. We have applied for listing of our ADSs on the New York Stock Exchange, which we believe is an established securities market in the United States for purposes of these rules. However, there can be no assurance that our ADSs will

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be readily tradable on an established securities market in this or later years (or that our shares will be readily tradable on an established securities market in any given year). Individuals that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of the trading status of our shares or ADSs. You should consult your own tax advisor regarding the application of these rules given your particular circumstances.

      The amount of any dividend paid in NT dollars will equal the U.S. dollar value of the NT dollars you receive, calculated by reference to the exchange rate in effect on the date you actually or constructively receive the dividend, which in the case of an ADS will be the date received by the depositary, regardless of whether the NT dollars are actually converted into U.S. dollars. If the NT dollars received as a dividend are not converted into U.S. dollars on the date of receipt, you will have a basis in the NT dollars equal to its U.S. dollar value on the date of receipt. Any gain or loss you realize if you subsequently sell or otherwise dispose of the NT dollars will be ordinary income or loss from sources within the United States for foreign tax credit limitation purposes.

      Subject to certain limitations under the Internal Revenue Code, you may be entitled to a credit or deduction against your federal income taxes for the net amount of any Republic of China taxes that are withheld from dividend distributions made to you. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends we pay with respect to shares or ADSs will generally be considered “passive income” or, for certain holders, “financial services income.” You may be subject to special rules if your foreign source income during the taxable year consists entirely of “qualified passive income” and if you have US$300 or less, or US$600 or less if you file a joint return, of creditable foreign taxes which you have paid or accrued during the taxable year. Further, a U.S. holder that:

•  has held shares or ADSs for less than a specified minimum period during which it is not protected from risk of loss,

•  is obligated to make payments related to the dividends or

•  holds the shares or ADSs in arrangements in which the U.S. holder’s expected economic profit, after non-U.S. taxes, is insubstantial,

may not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on shares or ADSs. The rules governing the foreign tax credit are complex. We therefore urge you to consult your tax advisor regarding the availability of the foreign tax credit under your particular circumstances.

      To the extent that the amount of any distribution you receive exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in your adjusted basis in the shares or ADSs and thereby increasing the amount of gain, or decreasing the amount of loss, you will recognize on a subsequent disposition of the shares or ADSs. The balance in excess of adjusted basis, if any, will be taxable to you as capital gain recognized on a sale or exchange.

      It is possible that pro rata distributions of shares to all shareholders may be made in a manner that is not subject to U.S. federal income tax. The basis of any new shares so received will be determined by allocating your basis in the old shares between the old shares and the new shares, based on their relative fair market values or the date of distribution.

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      For U.S. tax purposes, any such tax-free share distribution and any distributions in excess of current and accumulated earnings and profits generally would not result in foreign source income to you. Consequently, you may not be able to use the foreign tax credit associated with any Republic of China withholding tax imposed on such distributions unless you can use the credit against United States tax due on other foreign source income in the appropriate category for foreign tax credit purposes.

  Taxation of Capital Gains

      When you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized for the shares or ADSs and your basis in the shares or ADSs, determined in U.S. dollars. For foreign tax credit limitation purposes, such gain or loss will generally be treated as U.S. source. If you are an individual, and the shares or ADSs being sold or otherwise disposed of are capital assets that you have held for more than one year, your gain recognized will be eligible for reduced rates of taxation. Your ability to deduct capital losses is subject to limitations.

      Any Republic of China securities transaction tax, or any Republic of China capital gain tax imposed on the proceeds derived from sales of statutory subscription rights which are not evidenced by securities, that you pay generally will not be creditable foreign taxes for United States federal income tax purposes, but you may be able to deduct such taxes, subject to certain limitations under the Code. You are urged to consult your tax advisors regarding the United States federal income tax consequences of these taxes.

  Information Reporting and Backup Withholding

      In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements and backup withholding if you are a non-corporate United States person and you:

•  fail to provide an accurate taxpayer identification number,

•  are notified by the Internal Revenue Service that you have failed to report all interest or dividends required to be shown on your federal income tax returns, or

•  in certain circumstances, fail to comply with applicable certification requirements.

      If you sell your shares or ADSs to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless you establish an exemption. If you sell your shares or ADSs outside the United States through a non-U.S. office of a non-U.S. broker, and the sales proceeds are paid to you outside the United States, then United States backup withholding and information reporting requirements generally will not apply to that payment. However, United States information reporting, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if you sell your shares or ADSs through a non-U.S. office of a broker that:

•  is a United States person,

•  derives 50% or more of its gross income for a specified three-year period from the conduct of a trade or business in the United States,

•  is a “controlled foreign corporation” as to the United States, or

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•  is a foreign partnership, if at any time during its tax year:

•  one or more of its partners are U.S. persons, as defined in U.S. Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership or

•  at any time during its tax year the foreign partnership is engaged in a United States trade or business,

unless you establish an exemption.

      You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by filing a refund claim with the United States Internal Revenue Service.

  Inheritance and Gift Tax

      As discussed above in “— Republic of China Taxation”, certain Republic of China inheritance and gift taxes may be imposed on holders of ADSs. You should consult your own tax advisor regarding the U.S. tax consequences of such taxes on your particular situation.

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UNDERWRITING

      We, the Ministry of Transportation and Communications and the underwriters named below have entered into an underwriting agreement with respect to the ADSs being offered by this prospectus. Subject to certain conditions, each underwriter has severally agreed to purchase the number of ADSs indicated in the following table. Goldman Sachs International, Peterborough Court, 133 Fleet Street, London EC4A 2BB, United Kingdom, is the representative of the underwriters named below.

Underwriters		Number of ADSs
Goldman Sachs International			21,600,000
Oriental Securities Corporation			4,500,000
	Total		26,100,000

      We, the Ministry of Transportation and Communications and the underwriters named below have entered into an underwriting agreement with respect to the ADSs being offered by this prospectus. Subject to certain conditions, each underwriter has severally agreed to purchase the number of ADSs indicated in the following table. Merrill Lynch International, Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ, United Kingdom, is the representative of the underwriters named below.

Underwriters		Number of ADSs
Merrill Lynch International			16,200,000
Deutsche Bank Securities Inc.			4,500,000
CLSA Limited			1,500,000
The Hongkong and Shanghai Banking Corporation Limited			1,500,000
	Total		23,700,000

      We, the Ministry of Transportation and Communications and the underwriters named below have entered into an underwriting agreement with respect to the ADSs being offered by this prospectus. Subject to certain conditions, each underwriter has severally agreed to purchase the number of ADSs indicated in the following table. UBS AG, 25/F, One Exchange Square, 8 Connaught Place, Central, Hong Kong, is the representative of the underwriters named below.

Underwriters		Number of ADSs
UBS AG			16,200,000
Credit Suisse First Boston (Hong Kong) Limited			4,500,000
Daiwa Securities SMBC Hong Kong Limited			4,500,000
	Total		25,200,000

      The closing of the sale of ADSs under each underwriting agreement described above is conditioned on the closings of the sales of ADSs under the other two underwriting agreements described above.

      If the underwriters sell more ADSs than the total number set forth in the tables above, the underwriters have an option to purchase up to 11,250,000 additional ADSs from the Ministry of Transportation and Communications. They may exercise that option within 30 days of the date of this prospectus. If any ADSs are purchased pursuant to this option, the underwriters will severally purchase ADSs in approximately the same proportion as set forth in the table above.

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      The following table shows the per ADS and total underwriting discounts and commissions to be paid to the underwriters by the Ministry of Transportation and Communications. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional ADSs.

	Paid by the Ministry of
	Transportation and
	Communications
	No Exercise	Full Exercise
Per ADS	US$	US$
Total	US$	US$

      ADSs sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any ADSs sold by the underwriters to securities dealers may be sold at a discount of up to US$     per ADS from the initial public offering price. Any such securities dealers may resell any ADSs purchased from the underwriters to certain other brokers or dealers at a discount of up to US$                     per ADS from the initial public offering price. If all the ADSs are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.

      We have been advised by the underwriters that some of the underwriters are expected to make offers and sales both inside and outside the United States through their respective selling agents. Any offers and sales in the United States will be conducted by brokers and dealers registered with the Securities and Exchange Commission. Goldman Sachs International is expected to make offers and sales in the United States through its selling agent, Goldman, Sachs & Co. Merrill Lynch International is expected to make offers and sales in the United States through its registered broker-dealer affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated. CLSA Limited is expected to make offers and sales in the United States through its registered broker-dealer affiliate, Credit Lyonnais Securities (U.S.A.) Inc. The Hongkong and Shanghai Banking Corporation Limited is expected to make offers and sales in the United States through its registered broker-dealer affiliate, HSBC Securities Inc. UBS AG is expected to make offers and sales in the United States through its registered broker-dealer affiliate, UBS Securities LLC. Credit Suisse First Boston (Hong Kong) Limited is expected to make offers and sales in the United States through its registered broker-dealer affiliate, Credit Suisse First Boston LLC. Daiwa Securities SMBC Hong Kong Limited is expected to make offers and sales in the United States through its registered broker-dealer affiliate, Daiwa Securities America Inc.

      We and the Ministry of Transportation and Communications have agreed with the underwriters, subject to certain exceptions, not to offer, sell, contract to sell, hedge or otherwise dispose of any of our common shares, ADSs or any securities convertible into or exchangeable for common shares or ADSs during the period from the date of this prospectus continuing through the date 90 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters. In addition, the Ministry of Transportation and Communications has agreed with the underwriters, subject to certain exceptions, not to, after the completion of our privatization, offer, sell, contract to sell, hedge or otherwise dispose of any of our common shares, ADSs, or any securities convertible into or exchangeable for common shares or ADSs, until the earlier of (1) 180 days after the completion of our privatization and (2) December 31, 2004, except with the prior written consent of the representatives of the underwriters. See “Shares Eligible for Future Sale” beginning on page 132.

      In connection with the offering, the underwriters may, subject to applicable laws and regulations, purchase and sell ADSs in the open market. These transactions may include

166

short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of ADSs than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional ADSs from the Ministry of Transportation and Communications in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional ADSs or purchasing ADSs in the open market. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of ADSs made for the purpose of preventing or retarding a decline in the market price of the ADSs while the offering is in progress.

      The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased ADSs sold by or for the account of such underwriter in stabilizing or short covering transactions.

      These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the ADSs. As a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the New York Stock Exchange or relevant exchange, in the over-the-counter market or otherwise.

      No ADSs are offered or sold and, prior to the expiry of a period of six months from the closing date of the issuance of the ADSs no ADSs will be offered or sold to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances that have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995. Each underwriter has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) received by it in connection with the issue or sale of any ADSs in circumstances in which section 21(1) of the Financial Services and Markets Act 2000 does not apply to our company. Each underwriter has complied, and will comply with, all applicable provisions of the Financial Services and Markets Act 2000 and the Public Offers of Securities Regulations 1995 with respect to anything done by it in relation to the ADSs in, from or otherwise involving the United Kingdom.

      It is expected that a public offering without a listing of the ADSs will be made in Japan. No ADSs have been or will be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except in accordance with the terms and conditions of the public offering without a listing of the ADSs in Japan, as stated in the securities registration statement filed on June 18, 2003, as amended, with the Japanese authority under, or pursuant to any exemption from the registration requirements of, the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law. Each underwriter will send any dealer who purchases from it any ADSs a notice stating in substance that, by purchasing such ADSs, the dealer represents and agrees that it has not offered or sold, and will not offer or sell, any ADSs, directly or indirectly, in Japan or to or for the account of any resident thereof, except in accordance with the terms and

167

conditions of the public offering without a listing of the ADSs in Japan, as stated in the securities registration statement filed on June 18, 2003, as amended, with the Japanese authority under, or pursuant to any exemption from the registration requirements of, the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law, and that such dealer will send to any other dealer to whom it sells any of such ADSs a notice containing substantially the same statement as is contained in this sentence. As used in this paragraph, “resident of Japan” means any person residing in Japan, including any corporations or other entities organized under the laws of Japan. Each underwriter has also acknowledged that it may not conduct marketing activities in Japan.

      The ADSs have not been offered or sold, and will not be offered or sold in Hong Kong, by means of any document, other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong. No advertisement, invitation or document relating to the ADSs, whether in Hong Kong or elsewhere, has been or will be issued, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.

      This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs may not be circulated or distributed, nor may the ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (1) to an institutional investor or other person specified in Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “Securities and Futures Act”), (2) to a sophisticated investor, and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.

      The ADSs may not be, directly or indirectly, offered, sold, transferred or delivered in or from The Netherlands, as part of their initial distribution or as part of any re-offering, and neither this prospectus nor any other document in respect of the offering may be distributed or circulated in The Netherlands, other than to individuals or legal entities which include, but are not limited to, banks, brokers, dealers, institutional investors and undertakings with a treasury department, who or which trade or invest in securities in the conduct of a business or profession.

      No action has been or will be taken in any jurisdiction other than the United States and Japan that would permit a public offering of the ADSs or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the ADSs may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction.

      The ADSs have not been offered or sold, and will not be offered or sold, directly or indirectly, in the Republic of China.

168

      A prospectus in electronic format may be made available on the Internet web sites maintained by one or more underwriters or securities dealers. The representatives of the underwriters may agree to allocate a number of ADSs to the underwriters for sale to their online brokerage account holders. ADSs to be sold pursuant to an Internet distribution will be allocated by the representatives to the underwriters that may make Internet distribution on the same basis as other allocations. In addition, ADSs may be sold by the underwriters to securities dealers who resell ADSs to online brokerage account holders.

      Prior to the offering, there has been no public market for the ADSs in the United States. The initial public offering price of the ADSs being sold in this offering will be determined through negotiations among the representatives of the several underwriters and a pricing committee representing the interests of the Ministry of Transportation and Communications and the government of the Republic of China. In addition to prevailing market conditions and the level of investor interest in the ADSs, the price will be determined by reference to the most recent closing price of our common shares on the Taiwan Stock Exchange prior to the pricing date, and may be at a premium or a discount to that price.

      Application has been made for listing of the ADSs offered by this prospectus on the New York Stock Exchange under the symbol “CHT”. In order to meet one of the requirements for listing of the ADSs on the New York Stock Exchange, the underwriters have undertaken to sell lots of 100 or more ADSs to a minimum of 2,000 beneficial holders.

      We expect that the initial public offering price of the ADSs offered in this offering will be determined on or about July 15, 2003. Assuming that New York Stock Exchange approval is received, we expect the ADSs to begin trading on the New York Stock Exchange on the date on which the initial public offering price is determined. We expect to deliver the ADSs against payment in New York, New York on the third business day after the date on which the initial public offering price is determined.

      The underwriters or their respective affiliates may have, for their own accounts, entered into asset swaps, credit derivatives or other derivative transactions relating to the ADSs and/or our common shares in secondary market transactions. As a result of such transactions, the underwriters may hold long or short positions in the ADSs or derivatives or in our common shares. No disclosure will be made of any such positions. The underwriters or their respective affiliates may have purchased the ADSs and been allocated the ADSs for asset management and/or proprietary purposes and not with a view to distribution. Such purchases in aggregate accounted for less than 10% of the overall offering size.

      We estimate that our total expenses and the total expenses of the Ministry of Transportation and Communications for this offering, excluding underwriting discounts and commissions, will be approximately US$92,833 and US$2,400,000, respectively. The underwriters have agreed to reimburse us or the Ministry of Transportation and Communications or pay on our behalf or on behalf of the Ministry of Transportation and Communications the printing and engraving expenses and roadshow and other miscellaneous fees and expenses. The following table sets forth the various expenses incurred or to be incurred by

169

us and the Ministry of Transportation and Communications, as selling shareholder, in connection with this offering, other than underwriting discounts and commissions.

			Amount
	Amount		borne by
	borne by		selling
	us		shareholder
	US$		US$
Securities and Exchange Commission registration fees		92,833
Printing and engraving expenses				750,000
Accounting fees				450,000
Legal Fees				700,000
Roadshow and other miscellaneous fees and expenses				500,000

      We and the Ministry of Transportation and Communications have agreed to indemnify the several underwriters against certain liabilities including liabilities under the Securities Act of 1933.

      Purchasers of the ADSs offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page of this prospectus.

      This prospectus may be used by underwriters and dealers in connection with offers and sales of the ADSs to persons located in the United States, including ADSs initially sold outside the United States.

      Goldman Sachs International is acting as the global coordinator for this offering. Goldman Sachs International, Merrill Lynch International and UBS AG are acting as the joint bookrunners for this offering.

      We expect that delivery of the ADSs will be made against payment therefor on or about the closing date specified on the cover page of this prospectus, which will be the fourth business day following the date of pricing of the ADSs (this settlement cycle being referred to as “T+4”).

170

ENFORCEABILITY OF CIVIL LIABILITIES

      We are a company limited by shares and incorporated under the Republic of China Company Law and the Statute of Chunghwa Telecom Co., Ltd. All of our directors and executive officers, our supervisors and some of the experts named in this prospectus are residents of Taiwan and a substantial portion of our assets and the assets of those persons are located in Taiwan. As a result, it may not be possible for investors to effect service of process upon us or those persons within the United States, or to enforce against them judgments obtained in the United States courts, including those predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by Baker & McKenzie, our Republic of China counsel, that in their opinion any final judgment obtained against us in any court other than the courts of the Republic of China in connection with any legal suit or proceeding arising out of or relating to the ADSs will be enforced by the courts of the Republic of China without further review of the merits only if the court of the Republic of China in which enforcement is sought is satisfied that:

•  the court rendering the judgment has jurisdiction over the subject matter according to the laws of the Republic of China;

•  the judgment is not contrary to the public order or good morals of the Republic of China;

•  if the judgment was rendered by default by the court rendering the judgment, we were served within the jurisdiction of the court or process was served on us with judicial assistance of the Republic of China; and

•  judgments at the courts of the Republic of China are recognized and enforceable in the court rendering the judgment on a reciprocal basis.

      A party seeking to enforce a foreign judgment in the Republic of China would be required to obtain foreign exchange approval from the Central Bank of China for the payment out of Taiwan of any amounts recovered in connection with the judgment denominated in a currency other than NT dollars if a conversion from NT dollars to a foreign currency is involved.

VALIDITY OF SECURITIES

      We are being represented by Simpson Thacher & Bartlett LLP regarding matters of United States law and by Baker & McKenzie regarding matters of Republic of China law. Baker & McKenzie will pass upon the validity of the common shares. The underwriters are being represented by Sullivan & Cromwell LLP regarding matters of United States federal and New York state law and by Lee and Li regarding matters of Republic of China law.

EXPERTS

      The financial statements as of June 30, 2000, December 31, 2000, 2001 and 2002, and for the year ended June 30, 2000, the six-month period ended December 31, 2000 and each of the two years in the period ended December 31, 2002 included in this prospectus have been audited by T.N. Soong & Co., independent auditors, an associate member firm of Deloitte Touche Tohmatsu effective April 22, 2002, and formerly a member firm of Andersen Worldwide, SC, as stated in their reports appearing herein, and are included with their consent in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. T.N. Soong & Co. and Deloitte & Touche (Taiwan) established Deloitte & Touche effective June 1, 2003.

      The offices of T.N. Soong & Co. are located at 12/F, 156 Minsheng East Road, Sec. 3, Taipei, Taiwan, Republic of China.

171

WHERE YOU CAN FIND MORE INFORMATION

      We have filed a registration statement on Form F-1 with the SEC under the U.S. Securities Act of 1933 covering the common shares represented by the ADSs offered by this prospectus. A related registration statement on Form F-6 will be filed with the SEC to register the ADSs. You should refer to our registration statements and their exhibits and schedules if you would like to find out more about us and about the ADSs and the common shares represented by the ADSs. This prospectus summarizes material provisions of contracts and other documents that we refer to. Since the prospectus may not contain all the information that you may find important, you should review a full text of these documents. We have included copies of these documents as exhibits to our registration statements.

      You may review copies of the registration statements at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC’S regional offices located at 233 Broadway, New York, New York 10279 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also get copies of all or any portion of the registration statements from the public reference room, the regional offices or by calling the SEC at 1-800-SEC-0330 or by writing the SEC upon payment of a prescribed fee.

      Upon completion of the offering, we will be subject to the information requirements of the U.S. Securities Exchange Act of 1934 and, in accordance therewith, we will file with the SEC annual reports on Form 20-F within six months of our fiscal year-end, and provide to the SEC other material information on Form 6-K. These reports and other information can be inspected at the public reference room at the SEC and at the SEC regional offices listed above. You can also obtain copies of the material from the public reference room, the regional offices or by calling or writing the SEC upon payment of a prescribed fee. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.

      We will furnish to The Bank of New York, as depositary for the ADSs, our annual reports. We will also furnish the depositary with quarterly reports. When the depositary receives these reports, it will upon our request promptly provide them to all holders of record of ADSs. We also will furnish the depositary with all notices of shareholders’ meeting and other reports and communications in English that we make available to our shareholders. The depositary will make these notices, reports and communications available to holders of ADSs and will upon our request mail to all holders of record of ADSs the information contained in any notice of a shareholders’ meeting it receives.

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INDEX TO FINANCIAL STATEMENTS

		Page
Financial Statements of Chunghwa Telecom Co., Ltd.
	Independent Auditors’ Report		F-2
	Balance Sheets as of June 30, 2000, December 31, 2000, 2001 and 2002 and March 31, 2003		F-3
	Statements of Operations for the year ended June 30, 2000, the six months ended December 31, 2000, the years ended December 31, 2001 and 2002 and the three months ended March 31, 2002 and 2003		F-5
	Statements of Changes in Stockholders’ Equity for the year ended June 30, 2000, the six months ended December 31, 2000, the years ended December 31, 2001 and 2002 and the three months ended March 31, 2003		F-6
	Statements of Cash Flows for the year ended June 30, 2000, the six months ended December 31, 2000, the years ended December 31, 2001 and 2002 and the three months ended March 31, 2002 and 2003		F-7
	Notes to Financial Statements		F-8

F-1

Independent Auditors’ Report

The Board of Directors and Stockholders

Chunghwa Telecom Co., Ltd.

      We have audited the accompanying balance sheets of Chunghwa Telecom Co., Ltd. as of June 30, 2000, and December 31, 2000, 2001 and 2002, and the related statements of operations, changes in stockholders’ equity, and cash flows for the year ended June 30, 2000, for the six months ended December 31, 2000, and for the years ended December 31, 2001 and 2002, all expressed in New Taiwan dollars. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chunghwa Telecom Co., Ltd. as of June 30, 2000, and December 31, 2000, 2001 and 2002 and the results of its operations and its cash flows for the year ended June 30, 2000, for the six months ended December 31, 2000, and for the years ended December 31, 2001 and 2002 in conformity with accounting principles generally accepted in the United States of America.

T. N. Soong & Co.

(An Associate Member Firm of Deloitte Touche Tohmatsu

Effective April 22, 2002)

(Formerly a Member Firm of Andersen Worldwide, SC)

Taipei, Taiwan

The Republic of China

March 27, 2003

F-2

CHUNGHWA TELECOM CO., LTD.

BALANCE SHEETS

(Amounts in millions, except shares and par value data)

						December 31								March 31
				June 30,
		Notes		2000		2000		2001		2002		2002		2003		2003
				NT$		NT$		NT$		NT$		US$		NT$		US$
														(Unaudited)		(Unaudited)
												(Note 3)				(Note 3)
ASSETS
CURRENT ASSETS
Cash and cash equivalents			2,4,21	$	15,230	$	24,133	$	4,643	$	7,652	$	220	$	5,735	$	165
Trade notes and accounts receivable — net			2,5		23,728		20,967		20,378		17,211		495		16,025		461
Inventories			2		2,415		2,389		1,798		1,164		33		1,204		35
Prepaid expenses					2,907		1,929		546		486		14		2,953		85
Deferred income taxes			2,17		11,934		14,107		2,056		16,845		485		16,843		485
Other current assets			6		1,726		2,481		2,739		1,929		56		2,287		66
	Total Current Assets				57,940		66,006		32,160		45,287		1,303		45,047		1,297
INVESTMENTS IN UNCONSOLIDATED COMPANIES			2,7,18,21		707		943		1,959		3,727		107		3,627		104
PROPERTY, PLANT AND EQUIPMENT — NET			2,8		315,458		322,772		336,428		338,388		9,738		332,301		9,563
INTANGIBLE ASSETS
Prepaid pension cost			2,16		16,794		15,750		17,042		24,032		692		24,032		692
3G concession			2		—		—		—		10,179		293		10,179		293
Patents and computer software — net			2		108		140		160		212		6		235		6
	Total Intangible Assets				16,902		15,890		17,202		34,423		991		34,446		991
OTHER ASSETS
Advances to stockholders			9,21		13,034		—		—		—		—		—		—
Deferred income taxes — non-current			2,17		5,244		5,096		18,997		3,464		99		3,310		95
Other			21		2,634		2,695		4,668		3,364		97		3,337		96
	Total Other Assets				20,912		7,791		23,665		6,828		196		6,647		191
	TOTAL ASSETS			$	411,919	$	413,402	$	411,414	$	428,653	$	12,335	$	422,068	$	12,146

The accompanying notes are an integral part of the financial statements.

F-3

CHUNGHWA TELECOM CO., LTD.

BALANCE SHEETS — (Continued)

						December 31								March 31
				June 30,
		Notes		2000		2000		2001		2002		2002		2003		2003
				NT$		NT$		NT$		NT$		US$		NT$		US$
														(Unaudited)		(Unaudited)
												(Note 3)				(Note 3)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term loans			10	$	—	$	—	$	—	$	—	$	—	$	3,000	$	86
Commercial paper issued			11,21		8,959		—		—		—		—		—		—
Trade notes and accounts payable					7,439		7,576		15,000		11,217		323		9,750		281
Income tax payable					8,788		7,398		2,858		6,172		178		8,869		255
Accrued expenses			12		10,487		15,118		14,226		13,804		397		11,825		340
Accrued pension liabilities			2,16		32,143		19,335		—		32,226		927		33,203		956
Current portion of deferred income			2		4,237		4,109		4,148		3,957		114		3,731		107
Customers’ deposits			21		15,238		14,209		12,915		11,975		344		11,591		334
Other current liabilities			13,18		17,192		16,445		16,560		17,574		506		14,860		428
	Total Current Liabilities				104,483		84,190		65,707		96,925		2,789		96,829		2,787
OTHER LIABILITIES
Accrued pension liabilities			2,16		—		—		21,583		—		—		—		—
Deferred income — net of current portion			2		21,389		20,413		17,131		13,855		399		13,243		381
Long-term loans			14,21		—		—		17,000		17,700		509		700		20
Other					313		609		336		153		5		196		6
	Total Other Liabilities				21,702		21,022		56,050		31,708		913		14,139		407
	Total Liabilities				126,185		105,212		121,757		128,633		3,702		110,968		3,194
COMMITMENTS AND CONTINGENT LIABILITIES			19
STOCKHOLDERS’ EQUITY			15
Capital stock — NT$10 (US$0.29) par value; authorized, issued and outstanding — 9,647,724,900 common shares					96,477		96,477		96,477		96,477		2,776		96,477		2,776
Capital surplus					132,912		133,758		133,820		133,862		3,852		134,276		3,864
Retained earnings					56,345		77,955		59,360		69,681		2,005		80,347		2,312
	Total Stockholders’ Equity				285,734		308,190		289,657		300,020		8,633		311,100		8,952
	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	411,919	$	413,402	$	411,414	$	428,653	$	12,335	$	422,068	$	12,146

The accompanying notes are an integral part of the financial statements.

F-4

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF OPERATIONS

(Amounts in millions, except shares and per share and per ADS data)

							Six Months
					Year Ended		Ended		Years Ended December 31						Three Months Ended March 31
					June 30,		December 31,
			Notes		2000		2000		2001		2002		2002		2002		2003		2003
					NT$		NT$		NT$		NT$		US$		NT$		NT$		US$
															(Unaudited)		(Unaudited)		(Unaudited)
													(Note 3)						(Note 3)
SERVICE REVENUES				2	$	185,048	$	95,013	$	184,378	$	179,361	$	5,161	$	43,193	$	44,222	$	1,273
OPERATING COSTS AND EXPENSES				2
Costs of services, excluding depreciation and amortization						64,829		35,578		72,733		58,120		1,672		13,479		14,220		409
Marketing, excluding depreciation and amortization				2		17,945		9,597		21,867		20,167		580		3,129		5,061		146
General and administrative, excluding depreciation and amortization						3,342		1,592		3,451		2,647		76		784		748		22
Research and development, excluding depreciation and amortization				2		2,678		1,333		2,804		2,428		70		547		603		17
Depreciation and amortization — costs of services						34,731		18,195		36,648		37,890		1,090		9,075		9,865		284
Depreciation and amortization — operating expenses						1,968		1,031		2,272		2,408		70		611		650		19
	Total Operating Costs and Expenses					125,493		67,326		139,775		123,660		3,558		27,625		31,147		897
INCOME FROM OPERATIONS						59,555		27,687		44,603		55,701		1,603		15,568		13,075		376
OTHER INCOME
Interest						372		264		649		187		5		18		18		1
Equity in net income of unconsolidated companies				2,7		—		236		189		—		—		—		—		—
Other income						1,439		729		2,803		2,294		66		738		588		17
		Total Other Income				1,811		1,229		3,641		2,481		71		756		606		18
OTHER EXPENSES
Interest						169		103		392		171		5		15		10		—
Equity in net loss of unconsolidated companies				2,7		118		—		—		232		7		55		100		3
Other expense						559		439		971		852		24		245		47		2
		Total Other Expenses				846		542		1,363		1,255		36		315		157		5
INCOME BEFORE INCOME TAX						60,520		28,374		46,881		56,927		1,638		16,009		13,524		389
INCOME TAX				2,17		13,947		6,764		9,519		12,839		369		3,326		2,858		82
NET INCOME					$	46,573	$	21,610	$	37,362	$	44,088	$	1,269	$	12,683	$	10,666	$	307
NET INCOME PER SHARE				2	$	4.83	$	2.24	$	3.87	$	4.57	$	0.13	$	1.31	$	1.11	$	0.03
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING						9,647,724,900		9,647,724,900		9,647,724,900		9,647,724,900		9,647,724,900		9,647,724,900		9,647,724,900		9,647,724,900
NET INCOME PER PRO FORMA EQUIVALENT ADS				2	$	48.27	$	22.40	$	38.73	$	45.70	$	1.32	$	13.15	$	11.06	$	0.32
WEIGHTED-AVERAGE NUMBER OF PRO FORMA EQUIVALENT ADSs OUTSTANDING						964,772,490		964,772,490		964,772,490		964,772,490		964,772,490		964,772,490		964,772,490		964,772,490

The accompanying notes are an integral part of the financial statements.

F-5

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in millions, except shares data)

				Capital Stock						Retained Earnings										Accumulated
																				Other			Total
				Common				Capital		Legal		Special		Unappropriated						Comprehensive			Stockholders’
				Shares		Amount		Surplus		Reserve		Reserve		Earnings			Total			Income			Equity
						NT$		NT$		NT$		NT$		NT$			NT$			NT$			NT$
BALANCE, JUNE 30, 1999 (IN NT$)					9,647,724,900	$	96,477	$	132,830	$	9,935	$	1,930	$	43,830		$	55,695		$	406		$	285,408
Realized gain on available-for-sale securities					—		—		—		—		—		—			—			(406	)		(406	)
Additional capital contributed by government					—		—		82		—		—		—			—			—			82
Appropriations and distributions of 1999 earnings:
	Legal reserve				—		—		—		5,170		—		(5,170	)		—			—			—
	Special reserve				—		—		—		—		745		(745	)		—			—			—
	Dividends				—		—		—		—		—		(45,923	)		(45,923	)		—			(45,923	)
Net income for the year ended June 30, 2000					—		—		—		—		—		46,573			46,573			—			46,573
BALANCE, JUNE 30, 2000 (IN NT$)					9,647,724,900		96,477		132,912		15,105		2,675		38,565			56,345			—			285,734
Additional capital contributed by government					—		—		846		—		—		—			—			—			846
Net income for the six months ended December 31, 2000					—		—		—		—		—		21,610			21,610			—			21,610
BALANCE, DECEMBER 31, 2000 (IN NT$)					9,647,724,900		96,477		133,758		15,105		2,675		60,175			77,955			—			308,190
Additional capital contributed by government					—		—		62		—		—		—			—			—			62
Appropriations and distributions of 2000 earnings:
			Legal reserve		—		—		—		6,274		—		(6,274	)		—			—			—
			Dividends		—		—		—		—		—		(55,957	)		(55,957	)		—			(55,957	)
Net income for the year ended December 31, 2001					—		—		—		—		—		37,362			37,362			—			37,362
BALANCE, DECEMBER 31, 2001 (IN NT$)					9,647,724,900		96,477		133,820		21,379		2,675		35,306			59,360			—			289,657
Additional capital contributed by government					—		—		42		—		—		—			—			—			42
Appropriations and distributions of 2001 earnings:
		Legal reserve			—		—		—		3,727		—		(3,727	)		—			—			—
		Dividends			—		—		—		—		—		(33,767	)		(33,767	)		—			(33,767	)
Net income for the year ended December 31, 2002					—		—		—		—		—		44,088			44,088			—			44,088
BALANCE, DECEMBER 31, 2002 (IN NT$)					9,647,724,900	$	96,477	$	133,862	$	25,106	$	2,675	$	41,900		$	69,681		$	—		$	300,020
BALANCE, DECEMBER 31, 2002 (IN US$) (Note 3)					9,647,724,900	$	2,776	$	3,852	$	722	$	77	$	1,206		$	2,005		$	—		$	8,633
BALANCE, DECEMBER 31, 2002 (IN NT$)					9,647,724,900	$	96,477	$	133,862	$	25,106	$	2,675	$	41,900		$	69,681		$	—		$	300,020
Additional capital contributed by government (Unaudited)					—		—		4		—		—		—			—			—			5
Additional capital contributed by the MOTC through selling shares to employees at a discounted price (Unaudited)					—		—		410		—		—		—			—			—			409
Net income for the three months ended March 31, 2003 (Unaudited)					—		—		—		—		—		10,666			10,666			—			10,666
BALANCE, MARCH 31, 2003 (IN NT$) (UNAUDITED)					9,647,724,900	$	96,477	$	134,276	$	25,106	$	2,675	$	52,566		$	80,347			—		$	311,100
BALANCE, MARCH 31, 2003 (IN US$) (UNAUDITED) (Note 3)					9,647,724,900	$	2,776	$	3,864	$	723	$	77	$	1,512		$	2,312		$	—		$	8,952

The accompanying notes are an integral part of the financial statements.

F-6

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

(Amounts in millions)

				Year			Six Months
				Ended			Ended			Years Ended December 31									Three Months Ended March 31
				June 30,			December 31,
				2000			2000			2001			2002			2002			2002			2003			2003
				NT$			NT$			NT$			NT$			US$			NT$			NT$			US$
																			(Unaudited)			(Unaudited)			(Unaudited)
																(Note									(Note 3)
																3)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income				$	46,573		$	21,610		$	37,362		$	44,088		$	1,269		$	12,683		$	10,666		$	307
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for doubtful accounts				43			566			3,869			4,931			142			1			1,245			36
	Depreciation and amortization				36,699			19,226			38,920			40,298			1,160			9,686			10,515			303
	Loss on sale of marketable securities				126			—			—			—			—			—			—			—
	Cash dividends received from unconsolidated companies				303			283			94			—			—			—			—			—
	Losses on write down of inventories				21			71			—			—			—			—			—			—
	Net loss on disposal of scrap inventories and property, plant and equipment				174			106			955			150			4			—			33			1
	Equity in net loss (net income) of unconsolidated companies				118			(236	)		(189	)		232			7			55			100			3
	Stock compensation expense for shares issued to employees at a discount				—			—			—			—			—			—			410			12
	Deferred income taxes				(2,785	)		(2,025	)		(1,850	)		744			21			105			157			4
	Changes in operating assets and liabilities:
		Decrease (increase) in:
			Trade notes and accounts receivable		3,605			2,195			(3,280	)		(1,764	)		(51	)		(1,130	)		(59	)		(2	)
			Inventories		870			789			2,454			(483	)		(14	)		(1,648	)		(1,156	)		(33	)
			Prepaid expenses		1,213			978			1,383			60			2			(2,182	)		(2,467	)		(71	)
			Other current assets		(86	)		(1,038	)		(259	)		811			23			1,104			(359	)		(10	)
			Other assets		(130	)		(48	)		(1,724	)		1,028			30			1,024			(24	)		(1	)
		Increase (decrease) in:
			Trade notes and accounts payable		(3,784	)		137			3,583			(2,666	)		(77	)		(39	)		(351	)		(10	)
			Income tax payable		(2,042	)		(1,390	)		(4,540	)		3,314			95			3,122			2,697			78
			Accrued expenses		(1,314	)		4,631			(892	)		(422	)		(12	)		(3,181	)		(1,979	)		(57	)
			Customers’ deposits		(841	)		(1,029	)		(1,294	)		(940	)		(27	)		(352	)		(384	)		(11	)
			Other current liabilities		(905	)		(2,232	)		1,066			1,969			57			57			267			7
			Accrued pension liabilities		(5,688	)		(11,764	)		957			3,653			105			756			977			28
			Deferred income		(1,593	)		(1,104	)		(3,243	)		(3,467	)		(100	)		(832	)		(838	)		(24	)
			Other liabilities		(587	)		296			(273	)		(183	)		(5	)		(140	)		43			1
Net Cash Provided by Operating Activities					69,990			30,022			73,099			91,353			2,629			19,089			19,493			561
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities					403			—			—			—			—			—			—			—
Net increase in investments in unconsolidated companies					—			—			(980	)		(2,000	)		(58	)		(2,000	)		—			—
Return of investments from an unconsolidated company					—			—			58			—			—			—			—			—
Acquisitions of property, plant and equipment					(53,123	)		(25,382	)		(52,935	)		(43,260	)		(1,245	)		(10,957	)		(7,357	)		(212	)
Proceeds from disposal of property, plant and equipment					48			152			294			294			9			—			—			—
Payment on 3G concession					—			—			—			(10,179	)		(293	)		(10,179	)		—			—
Acquisitions of patents and computer software					(78	)		(62	)		(131	)		(174	)		(5	)		(29	)		(57	)		(1	)
Net Cash Used in Investing Activities					(52,750	)		(25,292	)		(53,694	)		(55,319	)		(1,592	)		(23,165	)		(7,414	)		(213	)
CASH FLOWS FROM FINANCING ACTIVITIES
Avail of short-term loans					—			—			—			—			—			21,000			3,000			86
Proceeds from issuance (payments) of commercial paper					8,959			(8,959	)		—			—			—			—			—			—
Proceeds of long-term loans					—			—			30,000			38,700			1,114			—			—			—
Payments on principal of long-term loans					—			—			(13,000	)		(38,000	)		(1,093	)		(17,000	)		(17,000	)		(489	)
Cash dividends paid					(2,073	)		—			(55,957	)		(33,767	)		(972	)		—			—			—
Additional capital contributed by government					82			98			62			42			1			14			4			—
Refunds on advances from (advances to) stockholders					(13,034	)		13,034			—			—			—			—			—			—
Net Cash Provided by (Used in) Financing Activities					(6,066	)		4,173			(38,895	)		(33,025	)		(950	)		4,014			(13,996	)		(403	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					11,174			8,903			(19,490	)		3,009			87			(62	)		(1,917	)		(55	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR/PERIOD					4,056			15,230			24,133			4,643			133			4,643			7,652			220
CASH AND CASH EQUIVALENTS, END OF YEAR/PERIOD				$	15,230		$	24,133		$	4,643		$	7,652		$	220		$	4,581		$	5,735		$	165
SUPPLEMENTAL INFORMATION
Interest paid				$	210		$	62		$	392		$	171		$	5		$	146		$	42		$	1
Income tax paid				$	18,094		$	10,757		$	15,908		$	8,781		$	253		$	100		$	4		$	—

The accompanying notes are an integral part of the financial statements.

F-7

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

1. General

      Chunghwa Telecom Co., Ltd. (“Chunghwa” or “the Company”) was incorporated on July 1, 1996 in the Republic of China (“ROC”) pursuant to the Telecommunications Act No. 30. The Company is a company limited by shares and, prior to August 2000, was wholly owned by the Ministry of Transportation and Communications (“MOTC”). Prior to July 1, 1996, the current operations of Chunghwa were carried out under the Directorate General of Telecommunications (“DGT”). The DGT was established by the MOTC in June 1943 to take primary responsibility in the development of telecommunications infrastructure and to formulate policies related to telecommunications. On July 1, 1996, the telecom operations of the DGT were spun-off as Chunghwa continues to carry out the business and the DGT continues to be the industry regulator.

      As a “dominant telecommunications service provider” of fixed-line and cellular telephone services, within the meaning of applicable telecommunications regulations of the ROC, the Company is subject to additional requirements imposed by the MOTC.

      The MOTC is in the process of privatizing the Company by reducing the government ownership to below 50% in stages. Certain of the Company’s common shares were sold, in connection with the foregoing privatization plan, in domestic public offerings in August 2000, in September 2000, in June 2001, in December 2002 and in March 2003 and in April 2003. Certain of the Company’s common shares were also sold to its employees in October 2000, October 2001 and January 2003. The ROC government has plans to sell the common shares of the Company in the ROC and in an international offering of securities in the form of American Depository Shares (“ADS”). In addition, the MOTC intends to sell certain of the Company’s common shares throughout the process to the Company’s employees.

      The Company’s common shares were listed and traded on Taiwan Stock Exchange on October 27, 2000.

2. Summary of Significant Accounting Policies

      Basis of presentation. The Company maintains its accounting books and records based on the ROC government regulations and generally accepted accounting principles in the ROC (“ROC GAAP”). The accompanying financial statements have been prepared to present its financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States (“US GAAP”).

      The financial statements as of March 31, 2003 and for the three months ended March 31, 2002 and 2003 included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted as permitted by such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of results for the interim periods have been made. The results for the three-month period ended March 31, 2003 are not necessarily indicative of results of the Company to be expected for the full fiscal year.

F-8

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      Use of estimates. The preparation of financial statements requires management to make certain estimates and assumptions that affect the recorded amounts of assets, liabilities, revenues and expenses of the Company. The Company continually evaluates these estimates, including those related to allowances for doubtful accounts, useful lives of long term assets, pension plans, valuation allowances on deferred income taxes, customer service periods, impairment of assets and the fair value of financial instruments. The Company bases its estimates on historical experience and other assumptions, which it believes to be reasonable under the circumstances. Actual results may differ from these estimates.

      Accounting year. Pursuant to a revision in the ROC’s Budget Law on October 29, 1998, the Company changed its financial reporting year from a fiscal year that begins on July 1 and ends on June 30 to a calendar year. As a result, for ROC reporting purposes the last “June 30” fiscal year recognized by the Company was the fiscal year ended June 30, 1999, and the 18-month period ended December 31, 2000 is considered a transition period by the Company. However, in the accompanying financial statements, the Company has reported the year ended June 30, 2000 separately as a comparative fiscal year, and the six months ended December 31, 2000 as a transition period. For purposes of comparison, we have provided unaudited income statement information below for the six-month period ended December 31, 1999.

F-9

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

		Six Months		Six Months
		Ended		Ended
		December 31,		December 31,
		1999		2000
		NT$		NT$
		(Unaudited)
SERVICE REVENUES		$	91,670	$	95,013
OPERATING COSTS AND EXPENSES
Costs of services, excluding depreciation and amortization			30,523		35,578
Marketing, excluding depreciation and amortization			8,419		9,597
General and administrative, excluding depreciation and amortization			1,517		1,592
Research and development, excluding depreciation and amortization			1,261		1,333
Depreciation and amortization — costs of services			17,179		18,195
Depreciation and amortization — operating expenses			975		1,031
	Total Operating Costs and Expenses		59,874		67,326
INCOME FROM OPERATIONS			31,796		27,687
OTHER INCOME			1,063		1,229
OTHER EXPENSES			300		542
INCOME BEFORE INCOME TAX			32,559		28,374
INCOME TAX			7,370		6,764
NET INCOME		$	25,189	$	21,610

      Foreign currency transactions. The functional currency of the Company is the local currency, the New Taiwan dollar (NT$). Thus, the transactions of the Company that are denominated in currencies other than the New Taiwan dollars (the “foreign currency”) are recorded in New Taiwan dollars at the exchange rates prevailing on the transaction dates. Gains or losses realized upon the settlement of a foreign currency transaction are included in the period in which the transaction is settled. The balances, at the balance sheet dates, of the foreign currency assets and liabilities are adjusted to reflect the prevailing exchange rates and the resulting differences are recorded as follows:

a.  Long-term stock investments accounted for by the equity method — as cumulative translation adjustment under stockholders’ equity.

b.  Other assets and liabilities — credited or charged to current income.

      Cash equivalents. Cash equivalents include commercial paper purchased with maturities of three months or less from the date of acquisition.

      Marketable securities. Marketable securities, which are designated as available-for-sale, are carried at their fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income. The unrealized gains of NT$406 million as of June 30, 1999 were shown as other comprehensive income in the accompanying statements of changes in stockholders’ equity. The Company sold these securities during the year ended June 30, 2000.

F-10

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      Inventories. Inventories, consisting mainly of telecommunication cables, are stated at the lower of cost (weighted-average cost method) or market value (replacement cost or net realizable value). If the market value is below cost, the Company writes down the inventory to the market value which then becomes the new cost basis.

      Investments in unconsolidated companies. Investments in shares of stock in companies where the Company exercises significant influence over their operating and financial policy decisions are accounted for using the equity method. The difference between the investment cost and the Company’s proportionate share in the net assets of the investee at the date of acquisition is amortized using the straight-line method over five years, which difference was fully amortized during the year ended June 30, 1999. Any cash dividends received are recognized as a reduction in the carrying value of the investment. Unrealized profits arising from downstream transactions to equity investees are deferred in the Company’s portion of equity income or loss. Profits and losses arising from equipment purchases from equity investees are eliminated and recognized over the estimated remaining useful life of the equipment.

      Investments in shares of stock with no readily determinable market values are accounted for using the cost method when the ownership is less than 20%. Cash dividends received are recorded as income and stock dividends received are accounted for as increases in the number of shares held but not recognized as income.

      The costs of investments sold are determined using the weighted-average method.

      Property, plant and equipment. Property, plant and equipment are stated at cost. Depreciation expense is determined based upon the assets’ estimated useful life using the straight-line method.

      The estimated useful lives are as follows:

		Useful Life
		(Years)
Buildings and improvements			10-60
Telecommunications equipment:
	Transmission equipment		9-15
	Exchange equipment		6-12
Miscellaneous equipment			3-10

      Cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial improvements, is charged to current income.

      Losses incurred for the sale or disposal of property, plant and equipment are recorded as costs of services.

      Valuation of long-lived assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the assets, a loss is recognized for the excess of the carrying amount over the fair value of the asset. No impairment charge was recorded throughout the periods presented in the accompanying financial statements.

F-11

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      3G Concession. This is the amount paid by the Company to the ROC government in connection with the grant of a concession to provide various telecommunication services using spectrum assigned by the MOTC that utilizes the International Mobile Telecommunication — 2000: The Global Standard for Third Generation Wireless Communications technical standards as announced by the International Telecommunications Union (the “3G Concession”). Licenses for 3G mobile telecommunication services are granted by the MOTC through a three-step procedure. Applicants first obtain a concession from the MOTC through a bidding process. The concession is valid from the issue date to December 31, 2004. The Company may apply to extend this date by one year with approval from the MOTC. The holder of the concession must then obtain a network construction permit from the Directorate General of Telecommunications (the “DGT”, the regulator of the telecommunication industry). Once the network construction is complete, the applicant may apply for a 3G license from the MOTC. The 3G license is valid through December 31, 2018. The 3G concession and any additional licensing fees will be amortized on a straight-line basis from the date operations commence through the date the license expires. The 3G Concession cost is currently subject to testing under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-lived Assets”.

      Patents and computer software. Patents are amortized using the straight-line method over the estimated useful lives ranging from 12 to 20 years. Computer software costs are capitalized and amortized using the straight-line method over the estimated useful lives of three years. Amortization expenses were NT$102 million for the years ended June 30, 2000, NT$30 million for the six months ended December 31, 2000, and NT$112 million and NT$122 million for the year ended December 31, 2001 and 2002, respectively, and NT$29 million (unaudited) and NT$34 million (unaudited) for the three months ended March 31, 2002 and 2003, respectively. Accumulated amortization was NT$395 million as of June 30, 2000, NT$425 million as of December 31, 2000, NT$537 million as of December 31, 2001, and NT$659 million as of December 31, 2002, and NT$693 million (unaudited) as of March 31, 2003.

      Deferred income. Deferred income represents one-time connection fees received from subscribers. The deferred income is recognized over the average expected customer service periods.

      The average expected customer service periods (in years) are as follows:

	Through		As of		As of		As of
	December 31,		December 31,		December 31,		March 31,
	2000		2001		2002		2003
							(Unaudited)
Fixed-line		15.0		14.0		13.0		13.0
Cellular		6.0		6.0		6.0		6.0
Paging		2.5		2.0		2.0		2.0
Internet		3.0		3.0		3.0		3.0

      Revenue recognition. The Company evaluates revenue recognition for its transactions using the United States Securities and Exchange Commission (“US SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”.

F-12

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      The Company records service revenues over the periods they are earned. The costs of providing services are recognized as incurred. Handset subsidy costs are paid to a vendor that sells a handset to a customer who subscribes to the service, as an inducement to enter into a service contract, and are recognized as a cost of service when incurred. Usage revenues from fixed-line services, cellular services, Internet and data services, and inter-connection and call transfer fees from other telecommunications companies and carriers are billed in arrears and are recognized based upon minutes of traffic processed when the services are provided in accordance with contract terms. The Company had accrued unbilled revenues for services provided amounting to NT$4,757 million as of June 30, 2000, NT$3,820 million as of December 31, 2000, NT$1,725 million as of December 31, 2001, NT$1,265 million as of December 31, 2002, and NT$1,456 million (unaudited) as of March 31, 2003 and are included in accounts receivable in the accompanying balance sheets.

      Other revenues are recognized as follows: (a) one-time subscriber connection fees are deferred and recognized over the average expected customer service periods, (b) fixed-monthly fees (on fixed-line services, wireless (cellular and paging) and Internet and data services) are accrued every month, and (c) prepaid services (fixed line, cellular and internet) are recognized as income based upon actual usage by customers or when the right to use those services expires.

      Concentrations. For all periods presented, no individual customer or supplier constituted more than 10% of the Company’s revenues, trade notes and accounts receivables, purchases or trade notes and accounts payable. The Company also does not have concentrations of available sources of labor, services or other rights that could, if suddenly eliminated, severely impact its operations. However, telecommunications franchises and licenses are issued solely by authority of the ROC government. The withdrawal or the revocation of the franchise and licenses by the ROC government would severely impact the Company’s operations. The Company invests its cash with several high-quality financial institutions.

      Pension costs. Pension costs are recorded on the basis of actuarial calculations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 87, “Employers’ Accounting for Pensions”, and are disclosed in accordance with SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. As a foreign registrant, the Company adopted SFAS No. 87 on July 1, 1996 since it was not feasible for the Company to obtain the information necessary to adopt SFAS No. 87 as of July 1, 1989. The Company has allocated a portion of the transition obligation directly to equity on the date of adoption based on the ratio of: (a) the years elapsed between the effective date in SFAS No. 87 and the adoption date, to (b) the remaining service period of employees expected to receive benefits as estimated at the adoption date.

      Advertising and promotional expenses. Advertising and promotional expenses are charged to income as incurred. These expenses were NT$1,701 million for the years ended June 30, 2000, NT$744 million for the six months ended December 31, 2000, and NT$1,723 million and NT$1,935 million for the year ended December 31, 2001 and 2002, respectively, and NT$63 million (unaudited) and NT$309 million (unaudited) for the three months ended March 31, 2002 and 2003, respectively.

F-13

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      Research and development costs. Research and development costs are charged to income as incurred.

      Employee stock compensation. In connection with the privatization plan of the Company, employees may be offered to purchase shares of common stock of the Company at less than fair market value. The Company records the difference between the quoted market price of the stock on the date of purchase and the purchase price as compensation expense and charges to income in the period of the purchase.

      Income tax. The Company is subject to income tax in the ROC. The Company accounts for income tax using the asset and liability method. Under this method, deferred income tax is recognized for investment tax credits, losses carried forward and the future tax consequences attributable to differences between financial statement carrying amounts and their respective tax bases, using enacted laws. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that a portion or the entire deferred tax asset will not be realized.

      Income taxes on undistributed earnings (10%) generated after 1998 are recorded as expense in the current year.

      Comprehensive income. Comprehensive income includes all changes in equity (net assets) during a period from sources other than the stockholders. The balance of comprehensive income is zero for all balance sheet dates presented.

      Net income per share and per pro forma equivalent ADS. Net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the periods. Net income per pro forma equivalent ADS is calculated by multiplying the above net income per share by ten as each ADS is expected to represent ten common shares.

Recent Accounting Pronouncements

      In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. The statement requires, among other provisions, retirement obligations to be recognized when they are incurred and displayed as liabilities, with a corresponding amount capitalized as part of the related long-lived asset. The capitalized element is required to be expensed using a systematic and rational method over its useful life. The Company assessed the impact of the adoption as required on January 1, 2003 of this standard and believes that there is no material impact on the accompanying financial statements.

      In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be measured at fair value and recorded when it meets the definition of a liability in FASB Concepts Statement No. 6, “Elements of Financial Statements”. SFAS No. 146 superceded EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (Including Certain Costs Incurred in Restructuring)”, which required recognition of a liability for costs associated with an exit or disposal activity when the company committed to an exit/disposal plan. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002.

F-14

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

Restatement of prior periods is not required. SFAS No. 146 applies to future restructuring activities and the application of SFAS No. 146 has no impact on the accompanying financial statements.

      In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, which amended FASB No. 123 “Accounting for Stock Based Compensation”. This statement provides alternative methods, of transition for an equity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. This statement also amended the disclosure provisions of that statement to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. This statement is effective January 1, 2003 and the Company does not expect to have a material impact on the accompanying financial statements.

      In November 2002, FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. The interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the Company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee and must disclose that information on its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002 and is not expected to have a material impact on the accompanying financial statements.

      In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin (“ARB”) No. 51.” FIN No. 46 requires the primary beneficiary to consolidate a variable interest entity if it has a variable interest that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur, or both. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which the entity obtains an interest after that date. For variable interest entities acquired before February 1, 2003, the effective date for the Company is July 1, 2003. The Company is currently in the process of determining the impact of this statement on its results of operations, financial position and cash flows.

      In November 2002, the EITF reached a consensus on EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” related to the timing of revenue recognition for arrangements in which goods or services or both are delivered separately in a bundled sales arrangement. The EITF requires that when the deliverables included in this type of arrangement meet certain criteria, they should be accounted for separately as separate units of accounting. This may result in a difference in the timing of revenue recognition, but will not result in a change in the total amount of revenue recognized in a bundled sales arrangement. The allocation of revenue to the separate deliverables is based on the relative fair value of each item. If the fair value is not available for the delivered items then the residual method must be used. This method requires that the amount allocated to the

F-15

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

undelivered items in the arrangement is their full fair value. This would result in the discount, if any, being allocated to the delivered items. This consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not believe there will be a significant impact of this consensus on its results of operations, financial position and cash flows.

      In January 2003, the EITF reached a consensus on EITF 02-18, “Accounting for Subsequent Investments in an Investee after Suspension of Equity Method Loss Recognition.” This consensus states that if an additional investment, in whole or in part, represents the funding of prior losses for an equity-method investee, the investor should recognize the previously suspended losses. This determination would be based on various factors, including whether the investment results in an increased ownership percentage, the fair value of the consideration received is equivalent to the consideration paid and whether the investment is acquired from a third party or directly from an investee. If any of these provisions are met, the additional investment would generally not be considered as funding prior losses. When appropriate to recognize prior losses, the amount recognized would be limited to the amount of the additional investment determined to represent the funding of prior losses. The consensus will be effective for additional investments made after February 5, 2003. There has been no significant impact to the Company’s results of operations, financial position and cash flows since the effective date of this consensus.

      In April 2003, the FASB issued SFAS No. 149, “Amendment to Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is applied prospectively and is effective for contracts entered into or modified after June 30, 2003. The Company has not determined the effect, if any, that SFAS No. 149 will have on its financial statements.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, could be accounted for as equity be classified as liabilities, or assets in some circumstances. This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities whose shares are mandatorily redeemable. The Company does not expect the adoption of SFAS No. 150 to have a significant impact on its financial statements.

3. U.S. Dollar Amounts

      The Company maintains its accounts and expresses its financial statements in New Taiwan dollars. For convenience only, U.S. dollar amounts presented in the accompanying financial statements have been translated at the noon buying rate for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York as of March 31,

F-16

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

2003, which was NT$34.75 to US$1.00. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

4. Cash and Cash Equivalents

			December 31
	June 30,								March 31,
	2000		2000		2001		2002		2003
	NT$		NT$		NT$		NT$		NT$
									(Unaudited)
Cash and bank deposits	$	4,442	$	11,511	$	4,643	$	2,460	$	2,287
Commercial paper purchased		10,788		12,622		—		5,192		3,448
	$	15,230	$	24,133	$	4,643	$	7,652	$	5,735

5. Allowance for Doubtful Accounts

      The changes in this account are summarized as follows:

				Six Months			Years Ended						Three Months Ended
	Year Ended			Ended			December 31,						March 31,
	June 30,			December 31,
	2000			2000			2001			2002			2002			2003
	NT$			NT$			NT$			NT$			NT$			NT$
													(Unaudited)			(Unaudited)
Balance, beginning of period	$	2,420		$	2,008		$	2,563		$	5,008		$	5,008		$	7,505
Provision for doubtful accounts		43			566			3,869			4,931			1			1,245
Accounts receivable written off		(455	)		(11	)		(1,424	)		(2,434	)		(365	)		(233	)
Balance, end of period	$	2,008		$	2,563		$	5,008		$	7,505		$	4,644		$	8,517

6. Other Current Assets

			December 31,
	June 30,								March 31,
	2000		2000		2001		2002		2003
	NT$		NT$		NT$		NT$		NT$
									(Unaudited)
Other receivables — net	$	524	$	1,560	$	2,113	$	1,800	$	2,075
Prepayments		375		764		503		52		157
Miscellaneous		827		157		123		77		55
	$	1,726	$	2,481	$	2,739	$	1,929	$	2,287

F-17

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

7. Investments in Unconsolidated Companies

      The investments in unconsolidated companies comprise the following:

						December 31,
		June 30,																March 31,
		2000				2000				2001				2002				2003
				% of				% of				% of				% of				% of
		Carrying		Owner-		Carrying		Owner-		Carrying		Owner-		Carrying		Owner-		Carrying		Owner-
		Value		ship		Value		ship		Value		ship		Value		ship		Value		ship
																		NT$
		NT$				NT$				NT$				NT$				(Unaudited)		(Unaudited)
Equity investees:
	Taiwan International Standard Electronics (“TISE”)	$	339		40	$	575		40	$	669		40	$	435		40	$	336		40
	Chunghwa Investment (“CHI”)		—		—		—		—		—		—		982		49		981		49
			339				575				669				1,417				1,317
Cost investees:
	Taipei Financial Center (“TFC”)		—		—		—		—		—		—		2,000		12		2,000		12
	Lucent Technologies Taiwan Telecom (“Lucent”)		234		15		234		15		234		15		234		15		234		15
	RPTI International (“RPTI”)		71		12		71		12		71		12		71		12		71		12
	Siemens Telecommunication Systems (“Siemens”)		63		15		63		15		5		15		5		15		5		15
			368				368				310				2,310				2,310
Deposit on subscription to shares of stock of CHI			—				—				980				—				—
		$	707			$	943			$	1,959			$	3,727			$	3,627

      TISE designs, manufactures and sells telecommunications equipment. It also provides maintenance services on such telecommunications equipment. The Company’s share of the dividends declared by TISE were NT$283 million for the year ended June 30, 2000, NT$0 for the six months ended December 31, 2000, NT$94 million and NT$0 million for the years ended December 31, 2001 and 2002, respectively, and NT$0 million (unaudited) for the three months ended March 31, 2002 and 2003, respectively.

      CHI invests in companies engaged in telecom and software businesses. No dividends were declared by CHI for the year ended December 31, 2002.

      The investments in TFC, Lucent, RPTI and Siemens have no quoted market values and are carried at their original costs which approximates fair value.

F-18

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

8. Property, Plant and Equipment — Net

				December 31,
		June 30,								March 31,
		2000		2000		2001		2002		2003
										NT$
		NT$		NT$		NT$		NT$		(Unaudited)
Cost
	Land	$	39,429	$	40,378	$	41,655	$	42,142	$	42,207
	Buildings and improvements		42,531		43,418		46,483		51,528		52,270
	Telecommunications equipment		533,517		551,490		566,801		594,786		599,835
	Miscellaneous equipment		23,894		24,776		26,054		26,931		27,838
	Subtotal		639,371		660,062		680,993		715,387		722,150
Accumulated depreciation
	Buildings and improvement		8,019		8,423		9,221		10,154		10,399
	Telecommunications equipment		340,499		353,353		371,482		395,791		401,398
	Miscellaneous equipment		17,027		17,734		18,994		19,732		20,240
	Subtotal		365,545		379,510		399,697		425,677		432,037
Construction in progress			40,713		41,857		54,801		48,582		42,115
Advances related to acquisitions of equipment			919		363		331		96		73
Property, plant and equipment — net		$	315,458	$	322,772	$	336,428	$	338,388	$	332,301

      On July 1, 1996, pursuant to the guidance on the incorporation of the Company and as instructed by the ROC’s Executive Yuan (executive branch), the ROC government (through the MOTC) transferred to the Company certain land and buildings with carrying value of NT$53,895 million. Those properties, as of that date, were registered in the name of the ROC’s National Properties Bureau (“NPB”). As the number of the Company’s properties is large, management has begun the process of registering the titles to the properties in the name of the Company. The process has been delayed due to the requirement of rezoning a small number of currently-classified agricultural and industrial zoned property to telecommunication or special purpose property prior to the approval of title transfer by the Executive Yuan. As of December 31, 2002 and March 31, 2003, titles to land and buildings with carrying value of NT$617 million and NT$590 million (unaudited) were still in the name of the NPB, respectively.

      The Company carries insurance on certain buildings and certain telecom equipment with carrying value of NT$7,871 million and NT$8,217 million (unaudited) as of December 31, 2002 and March 31, 2003, respectively. The Company does not carry comprehensive insurance on all properties.

9. Advances to Stockholders

      Prior to October 2000, the Company was required under regulations promulgated by the Executive Yuan to remit advance dividends to the ROC National Treasury. Those advance dividends bore no interest and were either offset against future dividends to be declared and paid by the Company or were refunded. The balance of the advances as of June 30, 2000,

F-19

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

was remitted by the Company on January 18, 2000 and was related to the earnings for the year ended June 30, 2000 and the six months ended December 31, 2000. This amount was refunded by the MOTC on December 28, 2000. There were no advances to stockholders in 2001 and 2002.

10. Short-Term Loans

      Short-term loans were obtained pursuant to short-term agreements with several banks that allow the Company to obtain unsecured credit due May 13, 2003. The aggregate outstanding principal amounts as of March 31, 2003 comprise three separate loans of NT$1 billion each. These loans bear fixed annual interest rates of 1.21%.

11. Commercial Paper Issued

      The aggregate face value of the commercial paper outstanding as of June 30, 2000 was NT$9,000 million. Such commercial paper was issued with annual discount rates ranging from 3.79% to 4.05%, and was fully repaid on August 25, 2000.

12. Accrued Expenses

			December 31,
	June 30,								March 31,
	2000		2000		2001		2002		2003
									NT$
	NT$		NT$		NT$		NT$		(Unaudited)
Accrued compensation	$	9,266	$	11,141	$	9,851	$	8,862	$	6,530
Accrued franchise fees		—		849		1,524		2,369		2,967
Other accrued expenses		1,221		3,128		2,851		2,573		2,328
Total	$	10,487	$	15,118	$	14,226	$	13,804	$	11,825

13. Other Current Liabilities

			December 31,
	June 30,								March 31,
	2000		2000		2001		2002		2003
									NT$
	NT$		NT$		NT$		NT$		(Unaudited)
Advances from subscribers	$	4,531	$	4,882	$	5,876	$	5,897	$	6,166
Payables to construction suppliers		911		1,306		2,437		4,075		1,909
Amounts collected in trust for others		2,463		1,890		1,411		3,443		3,196
Payables to equipment suppliers		3,066		4,135		4,301		1,933		1,138
Miscellaneous		6,221		4,232		2,535		2,226		2,451
Total	$	17,192	$	16,445	$	16,560	$	17,574	$	14,860

F-20

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

14. Long-Term Loans

      Long-term loans consist of the following:

			December 31,
	June 30,								March 31,
	2000		2000		2001		2002		2003
									NT$
	NT$		NT$		NT$		NT$		(Unaudited)
Syndicated Loans	$	—	$	—	$	17,000	$	17,000	$	—
Common Tunnel Fund		—		—		—		700		700
Total	$	—	$	—	$	17,000	$	17,700	$	700

      The Syndicated Loans were obtained pursuant to long-term loan agreements with several banks that allow the Company to obtain unsecured credit until December 16, 2005. The aggregate outstanding principal amounts as of December 31, 2001 (consisting of one loan of NT$17 billion) and as of December 31, 2002 (consisting of three separate loans of NT$8 billion, NT$7 billion and NT$2 billion) are due on July 30, 2004 and December 16, 2005, respectively. These loans bear fixed annual interest rates ranging from 3.918% to 4.145% and from 1.58% to 1.70% for the years ended December 31, 2001 and 2002, respectively. As of March 31, 2003, the Company prepaid NT$17 billion of the outstanding balances of these syndicated loans.

      The loan from the Common Tunnel Fund was obtained pursuant to a long-term loan agreement with the Common Tunnel Fund managed by Ministry of Interior that allows the Company to obtain unsecured interest-free credit until March 12, 2007. The outstanding principal amounts as of December 31, 2002 are payable in three annual installments (NT$0.2 billion, NT$0.2 billion and NT$0.3 billion) starting on March 12, 2005.

15. Stockholders’ Equity

      Under the Company’s Articles of Incorporation, authorized capital is divided into 9,647,724,900 common shares. Company’s Articles of Incorporation and the Republic of China Telecommunications Act provide that the MOTC has the right to purchase two redeemable preferred shares (NT$10 par value) in the event its ownership in the Company falls below 50% of the outstanding common shares. The MOTC, as the holder of those preferred shares, needs to consent to any change in the name of the Company, change in the scope of the business of the Company and any transfer of a substantial portion of the Company’s business or property. In addition, the holder of the preferred shares, or its nominated representative, will act as a director and/or supervisor during the entire period in which the preferred shares are outstanding. The Company must redeem all outstanding preferred shares within three years from the date of their issuance.

      Under the ROC Company Law, capital surplus may only be utilized to offset deficits or be declared as stock dividends. Also, such capital surplus can only be declared as a stock dividend by the Company at an amount calculated in accordance with the provisions of existing regulations. As of December 31, 2002, the amount of retained earnings available for dividends was NT$43,570 million and was based on earnings as determined using ROC government regulations.

F-21

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      In addition, before distributing a dividend or making any other distribution to stockholders, the Company must pay all outstanding taxes, recover any past losses and set aside a legal reserve equal to 10% of its net income, and, depending on its business needs or requirements, may also set aside a special reserve. The cash dividends to be distributed shall not be less than 10% of the total amount of dividends to be distributed. In addition, if the cash dividend to be distributed is less than NT$0.10 per share, such cash dividend shall be distributed in the form of common shares.

      Furthermore, under the ROC Company Law, the appropriation for legal reserve shall be made until the accumulated reserve equals the aggregate par value of the outstanding capital stock of the Company. This reserve can only be used to offset a deficit, or when reaching 50% of the aggregate par value of the outstanding capital stock of the Company, up to 50% of the reserve may, at the option of the Company, be declared as a stock dividend and transferred to capital.

      The MOTC, as part of the privatization plan of the Company, offered for sale to both corporate and individual investors 289,431,000 common shares of the Company between the period from August 16, 2000 to August 19, 2000 through an auction whereby the minimum price per share was set at NT$104. The minimum price was set on July 20, 2000 by an evaluation committee designated by the MOTC. The actual number sold was 206,627,000 common shares of the Company at an average price of approximately NT$109 per share for total proceeds of NT$22,549 million.

      From September 6, 2000 to September 14, 2000, the MOTC offered for sale to individual investors 1,334,982,000 common shares of the Company at NT$104 per share, of which only 65,832,000 common shares were sold for total proceeds of NT$6,847 million.

      From June 7, 2001 to June 20, 2001, the MOTC offered for sale to both corporate and individual investors 482,386,000 common shares of the Company through an auction whereby the minimum price per share (throughout the offer period) was set between NT$57.00 and NT$60.50. The MOTC sold 173,484,000 common shares for total proceeds of NT$9,950 million.

      On December 25, 2002, the MOTC offered and sold to corporate investors 1,300,000,000 common shares of the Company at NT$50.30 per share for total proceeds of NT$65,390 million.

      From March 3, 2003 to March 5, 2003, the MOTC offered for sale to both corporate and individual investors 100,000,000 common shares of the Company through an auction whereby the minimum price per share (throughout the offer period) was set between NT$51 and NT$52. The MOTC sold 7,424,000 common shares for total proceeds of NT$380 million.

      From April 10, 2003 to April 16, 2003, the MOTC offered for sale to both corporate and individual investors 500,000,000 common shares of the Company through an auction whereby the minimum price per share (throughout the offer period) was set between NT$49 and NT$50. The MOTC sold 165,830,000 common shares for total proceeds of NT$8,276 million.

      The MOTC, in connection with the privatization plan of the Company, sold, at discounted prices, to employees 3,051,786 shares from October 12, 2000 to October 16, 2000,

F-22

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

683,455 shares from October 4, 2001 to October 8, 2001, 40,856,440 shares from January 15, 2003 to January 24, 2003 and 215,251 shares from April 2, 2003 to April 4, 2003 for total consideration of NT$255 million, NT$28 million, NT$1,645 million and NT$9 million, respectively. The terms of the offers for the share purchases provided that substantially all full-time employees meeting limited employment qualifications may participate on an equitable basis taking into account service years, rank, level, salary and position, and performance. Such common shares, pursuant to the Enforcement Rule of the Statute Governing Privatization of State-Owned Enterprises, were offered and sold at a price similar to the price for those common shares sold to individual and corporate investors, which were NT$104, NT$51.20, NT$50.30 and NT$51 per share, respectively. The employees purchased the common shares at discounts of 10% and 20% in consideration for their commitment to hold the common shares for two and three years (the “holding periods”), respectively. In circumstances wherein the employees took advantage of such discounts, the common shares are held by an escrow agent on behalf of the employees/ stockholders. There are no circumstances under which the MOTC or the Company would be required to repurchase these common shares. Also, the employees are not required to remain employed with the Company during the duration of the holding periods. The Company has recognized NT$410 million (unaudited) as compensation expense in the first quarter of 2003 for the shares purchased by employees in 2003 that were subject to a discount. In addition, the MOTC sold 1,000,004 common shares, 10,424 common shares, 1,373,151 common shares and 7,481 common shares to employees at their undiscounted price of NT$104 per share, NT$51.20 per share, NT$50.30 per share and NT$51 per share, respectively, for total consideration of NT$104 million, NT$1 million, NT$69 million and NT$0.4 million, respectively.

      The MOTC, in connection with the compensation of the employees, sold to employees 209,337 shares from October 29, 2001 to November 7, 2001 and 293,589 shares from November 1, 2002 to November 7, 2002 for total consideration of NT$2 million and NT$3 million, respectively. The terms of the offers for the share purchases provided that employees purchase common shares from the above offering and hold for one to three years. Such common shares, pursuant to the Enforcement Rule of the Statute Governing Privatization of State-Owned Enterprises, were sold at par value (NT$10). The employees are not required to remain employed with the Company during the duration of the holding periods.

16. Pension Plan

      At the time of its incorporation on July 1, 1996, the Company continued the existing two noncontributory defined benefit pension plans covering all its employees, as previously adopted by the DGT. The first plan (hereinafter referred to as “Plan A”) covers civil service eligible employees (i.e., employees who meet the necessary qualifications set by the ROC government) and the second plan (hereinafter referred to as “Plan B”) covers all other employees of the Company (hereinafter referred to as “non-civil service eligible employees”). The adoption of two pension plans is necessary as different pension laws apply to civil service eligible and non-civil service eligible employees.

      Plan A provides benefits equal to the sum of: (a) the lump-sum payment equivalent to one benefit unit per year for the first twenty service years rendered and one-half benefit unit

F-23

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

per service year rendered thereafter, with one benefit unit equivalent to a portion of the salary of the employee at the time of retirement (referred to hereinafter as “pensionable salary”), and (b) annuity payments payable monthly equivalent to a certain percentage of the benefit unit. Plan B provides benefits equal to the lesser of: (a) forty-five benefit units, or (b) two benefit units per service year rendered for the first fifteen years, and one-half benefit unit per service year exceeding fifteen years rendered before August 1, 1984 and one benefit unit per service year for services rendered after August 1, 1984, with one benefit unit equivalent to the monthly average base salary (consisting of regular salary items plus overtime salary). Plan A is funded based on amounts included in budgets approved by the Legislative Yuan and supplementary budgets approved by the Executive Yuan while Plan B is funded at an amount equivalent to 2% to 15% of the monthly salary.

      The Company adopted SFAS No. 87 on July 1, 1996 (adoption date), the date of its incorporation. The unrecognized net transition obligation recorded to shareholders’ equity on July 1, 1996 was NT$6,571 million which represents the difference in the net pension cost for the period from the issuance of SFAS No. 87 and the date of adoption. The remaining unrecognized net transition obligation of NT$16,790 million is amortized over the estimated remaining service period of the employees as determined on July 1, 1996, which is a period of twenty-five years and seventeen years for civil service eligible employees and non-civil service eligible employees, respectively.

      On June 23, 1997, the Council for Economic Planning and Development of the ROC government officially instructed the Company to complete its privatization by June 30, 2001. Effective on the privatization date, except for those who will have reached the mandatory retirement age (age of 65 for Plan A participants and age 60 for Plan B participants) by that day, employees will receive pension benefit payments calculated in accordance with the Guidelines on Payments of Severance Benefits to Employees of State-Owned Enterprises (“Guidelines”), as required by the ROC government for state-owned enterprises instructed to undergo privatization plans. The employees not covered by the Guidelines will continue to receive benefits either as Plan A or Plan B participants.

      Under the Guidelines, the Company was to pay all benefit payments on June 30, 2001, the initial expected date of privatization, to settle all employees’ past service costs under the existing plans. On the actual privatization date, a replacement plan with substantially the same provisions will be put in place. The settlement benefit payments, regardless of the respective original plan participation, will be as follows: (a) employees who will voluntarily leave the Company on the privatization date (hereinafter referred to as “separated employees”) will receive a service clearance payment which is calculated similar to the benefit formula under the original Plan B as mentioned above plus an additional six-month salary and one-month advance notice pay (hereinafter referred to as the “additional separation payments”); (b) employees who opt to remain with the privatized company after the privatization date (hereinafter referred to as “privatized company employees”) will receive an amount equivalent to those received by the separated employees without the additional separation payments; and (c) privatized company employees who are involuntarily terminated by the Company within five years from the date of privatization (hereinafter referred to as “redundant employees”) will receive redundancy benefits equivalent to the amount computed based on one benefit unit for every year of service after privatization plus

F-24

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

the additional separation payments (hereinafter referred to as “redundancy benefit payments”). The six-month portion of the additional separation payments and the redundancy benefit payments will be paid by the MOTC, and the one-month portion will be paid by the Company.

      The unrecognized prior service costs, which amounted to NT$30,018 million, related to the increased benefits provided under the plan amendment described in the preceding paragraph were amortized through June 30, 2001. The unrecognized prior service costs associated with the plan amendment exclude any costs expected to be incurred for the additional separation payments or redundancy benefit payments. The additional separation payments under the Guidelines are accounted for as special termination benefits and will be recognized in the period when the employee accepts the offer while the redundancy benefit payments will be recognized in the period management has approved a plan of termination.

      On December 2, 1999, in order to increase operational efficiency, the Company approved a Special Retirement Incentive Program (“Program”). The employees eligible under the Program, except those who would have reached the mandatory retirement age during its effectiveness, are those: (a) who have worked with the Company for at least five years and who are at least 60 years of age, (b) who have worked with the Company for at least 25 years, (c) who have worked with the Company for at least fifteen years and who are at least 55 years of age, (d) who are at least 45 years old, (e) who are unable to return to work after an extended illness, and (f) special cases approved by a special committee. The Program allowed eligible employees who elected to voluntarily leave the Company between the period from June 1, 2000 through June 30, 2001 to also receive benefit payments based on the respective original plan (meaning Plan A or Plan B) plus the additional separation payments. The present value of such amount over and above the lump sum amount that would have been paid to the employees had they stayed until June 30, 2001 was accounted for as special termination benefits. Accordingly, such benefits were recognized as a liability and charged to income upon the employees acceptance of the terms of the Program. The Company recognized termination benefits of NT$2,284 million for the year ended June 30, 2000 and NT$2,413 million for the year ended December 31, 2001. No employee accepted the terms of the Program during the six months ended December 31, 2000.

      On November 14, 2000, the Statute of Chunghwa Telecom Co., Ltd. was amended to effectively adjust the salaries of certain civil service eligible employees, which adjustment should be completed at least six months prior to the privatization. In addition, the service years as contractual employees rendered prior to the incorporation of the Company on July 1, 1996 is included in determining the total service years of certain employees for purposes of determining the benefit obligation under the Plan. The change in benefit obligation attributable to the salary adjustment has been accounted for as an actuarial loss while the change in the benefit obligation attributable to the recognition of additional service years as contractual employees, which approximated NT$785 million, was accounted for as unrecognized prior service cost.

      On December 31, 2000, the Legislative Yuan approved the ROC government budget for the calendar year 2001 (the “Budget”). The Budget assumed that the proceeds from the privatization of the Company would be in the fourth quarter of the calendar year 2001,

F-25

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

thereby formalizing the ROC government’s approval to delay the privatization. The MOTC also instructed the Company to complete its privatization by December 31, 2001. The change in the privatization date to December 31, 2001 was viewed as a change in the plan assumption, and, accordingly, the resulting adjustment in the projected benefit obligation accounted for as an actuarial gain.

      The privatization of the Company was not completed on December 31, 2001, primarily as a result of unfavorable conditions in the capital markets. The MOTC has informed the Company by a letter sent on December 28, 2001 that the new target privatization date is December 31, 2003. The Company will account for the change in the privatization date also as a change in the assumption with the resulting adjustment in the projected benefit obligation accounted for as an actuarial gain.

      In addition, pursuant to a regulation issued by the Executive Yuan, the obligation related to annuity payments due after the date of privatization for Plan A participants who retire prior to that date will be borne by the MOTC. Such amounts have been included in the Company’s pension computation as of December 31, 2000, 2001 and 2002. Upon privatization, the portion of liabilities that will be taken over by the MOTC will be accounted for as contributed capital and recorded in stockholders’ equity.

      For the three months ended March 31, 2002 and 2003, pension costs amounted to NT$1,007 million (unaudited) and NT$1,034 million (unaudited), respectively. The Company’s contributions to the retirement plan were NT$251 million (unaudited) and NT$57 million (unaudited) for the three months ended March 31, 2002 and 2003, respectively.

      The components of net periodic benefit costs are as follows:

				Six Months			Years Ended
	Year Ended			Ended			December 31
	June 30,			December 31,
	2000			2000			2001			2002
	NT$			NT$			NT$			NT$
Service cost	$	2,194		$	1,147		$	2,429		$	2,285
Interest cost		5,537			2,998			5,229			2,870
Expected return on plan assets		(1,930	)		(2,075	)		(4,071	)		(2,196	)
Termination benefit under the Program		2,284			—			2,413			—
Amortization of unrecognized net transition obligation		939			470			939			939
Amortization of unrecognized prior service costs		7,504			3,909			4,381			—
Amortization of unrecognized net loss		—			—			6			172
Net periodic pension cost	$	16,528		$	6,449		$	11,326		$	4,070

F-26

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      The changes in benefits obligation and plan assets and the reconciliation of funded status are as follows:

					Six Months
		Year Ended			Ended			Years Ended December 31
		June 30,			December 31,
		2000			2000			2001			2002
		NT$			NT$			NT$			NT$
Change in benefits obligation:
	Projected benefits obligation, beginning of period	($	90,560	)	($	99,952	)	($	106,231	)	($	114,289	)
	Services cost		(2,194	)		(1,147	)		(2,429	)		(2,285	)
	Interest cost		(5,537	)		(2,998	)		(5,229	)		(2,870	)
	Termination benefit under the Program		(2,284	)		—			(2,413	)		—
	Plan amendments		—			(785	)		—			—
	Actuarial loss		—			(2,198	)		(6,782	)		(8,347	)
	Benefits paid		623			849			8,795			7,969
	Projected benefits obligation, end of period	($	99,952	)	($	106,231	)	($	114,289	)	($	119,822	)
Change in plan assets:
	Fair value of plan assets, beginning of period	$	40,539		$	64,062		$	83,889		$	89,377
	Actual return on plan assets		1,930			2,463			3,914			1,654
	Employer contributions		22,216			18,213			10,369			416
	Benefits paid		(623	)		(849	)		(8,795	)		(7,969	)
	Fair value of plan assets, end of period	$	64,062		$	83,889		$	89,377		$	83,478
Reconciliation of funded status Funded status		($	35,890	)	($	22,343	)	($	24,912	)	($	36,344	)
	Unrecognized net transition obligation		13,036			12,567			11,628			10,689
	Unrecognized prior service costs		7,505			4,381			—			—
	Unrecognized actuarial loss		—			1,810			8,743			17,461
	Net amount recognized	($	15,349	)	($	3,585	)	($	4,541	)	($	8,194	)

F-27

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      The amounts recognized in the accompanying balance sheets as of June 30, 2000, and December 31, 2000, 2001 and 2002 are as follows:

					December 31
		June 30,
		2000			2000			2001			2002
		NT$			NT$			NT$			NT$
Amounts recognized
	Accrued pension liabilities	($	32,143	)	($	19,335	)	($	21,583	)	($	32,226	)
	Intangible asset — prepaid pension cost		16,794			15,750			17,042			24,032
	Net amount recognized	($	15,349	)	($	3,585	)	($	4,541	)	($	8,194	)
Actuarial assumptions
	Discount rate used in determining present value		6.00	%		6.00	%		4.00	%		3.75	%
	Long-term rate of return on plan assets		6.00	%		6.00	%		4.00	%		3.75	%
	Rate of compensation increase		2.00	%		2.00	%		5.00	%		5.00	%

17. Income Tax

      The components of income tax are as follows:

				Six Months			Years Ended					Three Months Ended
	Year Ended			Ended			December 31					March 31
	June 30,			December 31,
	2000			2000			2001			2002		2002		2003
	NT$			NT$			NT$			NT$		NT$		NT$
												(Unaudited)		(Unaudited)
Current	$	16,732		$	8,789		$	11,369		$	12,095	$	3,221	$	2,701
Deferred		(2,785	)		(2,025	)		(1,850	)		744		105		157
	$	13,947		$	6,764		$	9,519		$	12,839	$	3,326	$	2,858

F-28

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      A reconciliation between income tax expense computed by applying the statutory income tax rate of 25% to income before income tax and income tax expense shown in the statements of operations is as follows:

				Six Months			Years Ended
	Year Ended			Ended			December 31						Three Months Ended
	June 30,			December 31,									March 31,
	2000			2000			2001			2002			2002			2003
	NT$			NT$			NT$			NT$			NT$			NT$
													(Unaudited)			(Unaudited)
Income tax expense computed at statutory tax rate	$	15,130		$	7,094		$	11,720		$	14,232		$	4,002		$	3,381
Permanent differences		(148	)		(120	)		(354	)		(99	)		(39	)		62
Investment Tax Credit		(1,185	)		(459	)		(2,554	)		(2,095	)		(453	)		(684	)
Other		150			249			707			801			(184	)		99
Income tax expense	$	13,947		$	6,764		$	9,519		$	12,839		$	3,326		$	2,858

      Upon privatization in the period when the government’s ownership percentage falls below 50%, the Company will continue to be subject to a 10% tax on its undistributed earnings as required by the Income Tax Law of the ROC. As the Company is currently and has historically been required under government regulations to distribute all its earnings within six months subsequent to year end, it has been required to pay a minimal amount of tax under this regulation. For ROC GAAP purposes, the 10% tax on undistributed earnings is recorded as an expense at the time shareholders resolve that its earnings shall be retained and the liability is incurred.

      Permanent differences consist primarily of tax-exempt income from the sale of marketable securities and interest income on commercial paper purchased, which are subject to a separate income tax rate of 20%.

F-29

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      Deferred income taxes arise due to temporary differences in the book and tax bases of certain assets and liabilities. Significant components of deferred income tax assets are shown in the following table:

					December 31
		June 30,										March 31,
		2000			2000			2001		2002		2003
		NT$			NT$			NT$		NT$		NT$
												(Unaudited)
Current:
	Provision for doubtful accounts	$	369		$	558		$	1,143	$	1,688	$	1,785
	Deferred income		946			1,027			1,037		989		933
	Accrued pension costs		10,151			12,195			—		14,823		14,935
	Prepaid card revenues (related liability is included in “other current liabilities”)		874			911			898		915		911
	Other — net		(40	)		(33	)		120		145		90
			12,300			14,658			3,198		18,560		18,654
	Less — valuation allowance		366			551			1,142		1,715		1,811
		$	11,934		$	14,107		$	2,056	$	16,845	$	16,843
Non-current:
	Accrued pension costs	$	—		$	—		$	14,488	$	—	$	—
	Deferred income		5,207			5,067			4,253		3,442		3,289
	Other		702			747			1,306		1,091		1,147
			5,909			5,814			20,047		4,533		4,436
	Less — valuation allowance		665			718			1,050		1,069		1,126
		$	5,244		$	5,096		$	18,997	$	3,464		3,310

      The above deferred income tax assets were computed based on a tax rate of 25%. A portion of the amount included in Other relates to the timing differences between US GAAP reporting and the taxable base for the 10% undistributed earnings tax. These differences are computed based on a tax rate of 10%.

18. Transactions with Related Parties

      As the Company is a state-owned enterprise, the ROC government is one of the Company’s largest customers. The Company provides fixed-line services, wireless services, Internet and other services to the various departments and agencies of the ROC government and other state-owned enterprises in the normal course of business and at arm’s-length prices. The information on service revenues from government bodies and related organizations have not been provided because details of the type of users were not maintained by the Company. The Company believes that all costs of doing business are reflected in the financial statements and that no additional expenditures will be incurred as a result of the privatization being completed.

      In addition, the Company acquired from TISE, an equity investee, several telecommunications exchange facilities and related supplies and replacement parts totaling

F-30

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

NT$4,257 million for the year ended June 30, 2000, NT$1,750 million for the six months ended December 31, 2000, NT$3,018 million and NT$6,879 million for the years ended December 31, 2001 and 2002, respectively, and NT$3 million (unaudited) and NT$214 million (unaudited) for the three months ended March 31, 2002 and 2003, respectively. These transactions were conducted under normal commercial terms. The Company recorded payables to TISE as other current liabilities of NT$156 million as of June 30, 2000, NT$30 million as of December 31, 2000, NT$912 million and NT$873 million as of December 31, 2001 and 2002, respectively, and NT$427 million (unaudited) as of March 31, 2003, respectively.

19. Commitments and Contingent Liabilities

      As of December 31, 2002 and March 31, 2003, the Company had remaining commitments under non-cancelable contracts with various parties as follows: (a) acquisitions of land and buildings of NT$4,231 million and NT$3,651 million (unaudited), respectively, and (b) acquisitions of telecommunications equipment of NT$14,611 million and NT$11,255 million (unaudited), respectively.

      The Company also has non-cancelable operating leases covering certain buildings, computers, computer peripheral equipment and operating system software under contracts that expire in various years. Minimum rental commitments under those leases are as follows:

	December 31,		March 31,
	2002		2003
			NT$
	NT$		(unaudited)
Within the following year	$	1,350	$	1,146
During the second year		596		591
During the third year		272		295
During the fourth year		136		171
During the fifth year and thereafter		74		87

      As of December 31, 2002 and March 31, 2003, the Company had unused letters of credit of NT$2,345 million and NT$12,858 million (unaudited), respectively.

20. Litigation

      The Company is involved in various legal proceedings of a nature considered normal to its business. It is the Company’s policy to accrue for amounts related to these legal matters when it is probable that a liability has been incurred and the amount is reasonably estimable.

      The Company believes that the various asserted claims and litigation in which it is involved will not materially affect its financial position, future operating results or cash flows, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation.

F-31

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

21. Information on Financial Instruments

      The non-derivative financial instruments are as follows:

						December 31
		June 30, 2000				2000				2001				2002				March 31, 2003
		Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
		Amount		Value		Amount		Value		Amount		Value		Amount		Value		Amount		Value
		NT$		NT$		NT$		NT$		NT$		NT$		NT$		NT$		NT$		NT$
																		(unaudited)
Assets
Cash and cash equivalents		$	15,230	$	15,230	$	24,133	$	24,133	$	4,643	$	4,643	$	7,652	$	7,652	$	5,735	$	5,735
Investments in
	unconsolidated companies, accounted for using the equity method		339		1,191		575		1,354		669		1,424		1,417		1,952		1,317		1,787
Advances to stockholders			13,034		13,034		—		—		—		—		—		—		—		—
Refundable deposits (included in “other assets — other”)			2,098		2,098		2,103		2,103		2,679		2,679		2,759		2,759		2,745		2,745
Liabilities
	Commercial paper issued		8,959		8,959		—		—		—		—		—		—		—		—
	Customers’ deposits		15,238		9,357		14,209		8,833		12,915		8,406		11,975		9,004		11,591		8,692
	Long-term loans		—		—		—		—		17,000		17,000		17,700		17,700		700		700

      The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

a.  Cash and cash equivalents, commercial paper issued and short term loans. The carrying amounts approximate fair values because of the short maturity of those instruments.

b.  Investments in unconsolidated companies, accounted for using the equity method. The fair value is based on net asset values of the investments in unconsolidated companies since the quoted market prices are not available.

c.  Advances to stockholders. The carrying amounts approximate fair values because the Company may credit such amounts against future dividends.

d.  Refundable deposits. The carrying amounts approximate fair values since the average lease term associated with these deposits is approximately one year.

e.  Customers’ deposits. The fair value is the discounted value based on projected cash flow. The projected cash flows were discounted using the average expected customer service periods.

f.  Long-term loans. The fair value is discounted value based on projected cash flow. The projected cash flows were discounted using the maturity dates of long-term loans.

22. Segment Reporting

      SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information”, establishes standards for reporting information about operating segments in the financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available for regular evaluation by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

F-32

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

      The Company organizes its business segments based on the various types of telecommunications services provided to customers. The major business segments operated by the Company are classified as below:

•  Local operations — the provision of local telephone services;

•  DLD operations — the provision of domestic long distance call services;

•  ILD operations — the provision of international long distance call services;

•  Cellular operations — the provision of cellular and related services;

•  Paging operation — the provision of paging and related services;

•  Internet and data operation — the provision of Internet access, lease line, and related services;

•  All other operations — the services other than the above six categories, such as carrying out project research and providing training.

      The operating segments are managed separately as each operating segment represents a strategic business unit that serves different markets. All the operating segments of the Company have been aggregated into the above reportable segments.

      The Company evaluates performance based on several factors using information prepared on the ROC government regulations basis. The information below is provided on this basis with a summary of US GAAP adjustments to reconcile to the amounts presented in the statement of operations. The Company does not allocate interest and other income, interest expense or taxes to operating segments, nor does the Company’s chief operating decision maker evaluate operating segments on these criteria. Except as discussed above, the accounting policies for segment reporting are the same as for the company as a whole. The Company’s primary measure of segment profit is based on income or loss from operations.

F-33

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

a. Business Segments:

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
Fiscal Year Ended June 30, 2000
Service revenues for reportable segments		$	84,927		$	28,218		$	30,554		$	42,387		$	3,105		$	29,624		$	1,945		$	220,760
	Elimination of intersegment amount		(23,580	)		(2,687	)		(1	)		(350	)		(29	)		(10,109	)		—			(36,756	)
	US GAAP adjustments		538			121			148			210			27			—			—			1,044
Total service revenues from external customers			61,885			25,652			30,701			42,247			3,103			19,515			1,945			185,048
Operating costs and expenses, excluding depreciation and amortization			52,153			16,271			15,276			20,353			2,275			14,411			2,227			122,966
	Elimination of intersegment amount		(2,465	)		(12,908	)		(2,837	)		(12,716	)		(1,208	)		(4,243	)		(379	)		(36,756	)
	US GAAP adjustments		(907	)		(312	)		(198	)		13			(27	)		(164	)		(3	)		(1,598	)
			48,781			3,051			12,241			7,650			1,040			10,004			1,845			84,612
	Unallocated corporate amount																							4,182
Total operating costs and expenses, excluding depreciation and amortization																								88,794
Depreciation and amortization			24,651			1,169			1,222			2,480			471			6,206			441			36,640
	US GAAP adjustments		—			(11	)		—			5			—			—			—			(6	)
			24,651			1,158			1,222			2,485			471			6,206			441			36,634
	Unallocated corporate amount																							65
Total depreciation and amortization																								36,699
Income from operations			8,123			10,778			14,056			19,554			359			9,007			(723	)		61,154
	Elimination of intersegment amount		(21,115	)		10,221			2,836			12,366			1,179			(5,866	)		379			—
	US GAAP adjustments		1,445			444			346			192			54			164			3			2,648
			(11,547	)		21,443			17,238			32,112			1,592			3,305			(341	)		63,802
	Unallocated corporate amount																							(4,247	)
Total income from operations																								59,555
Income before income tax			7,864			11,001			13,671			19,482			354			9,343			(738	)		60,977
	Elimination of intersegment amount		(21,115	)		10,221			2,836			12,366			1,179			(5,866	)		379			—
	US GAAP adjustments		2,059			444			371			242			56			169			4			3,345
			(11,192	)		21,666			16,878			32,090			1,589			3,646			(355	)		64,322
	Unallocated corporate amount																							(3,802	)
Total income before income tax																								60,520

F-34

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
Segment assets			289,869			22,846			20,946			28,302			3,392			37,528			15,050			417,933
	US GAAP adjustments		(51,200	)		(2,267	)		(3,472	)		(1,958	)		(259	)		(110	)		(2,954	)		(62,220	)
			238,669			20,579			17,474			26,344			3,133			37,418			12,096			355,713
	Unallocated corporate amount																							56,206
Total segment assets																								411,919
Expenditures for segment assets			32,152			3,827			1,357			9,368			624			4,811			898			53,037
	Unallocated corporate amount																							86
Total expenditures for segment assets																								53,123

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
As of and for the six months ended December 31, 2000
Service revenues for reportable segments			41,861			13,659			12,886			25,259			1,301			18,514			1,082			114,562
	Elimination of intersegment amount		(11,153	)		(1,293	)		(-	)		(241	)		(4	)		(6,173	)		(-	)		(18,864	)
	US GAAP adjustments		(324	)		(34	)		(46	)		37			(274	)		(17	)		(27	)		(685	)
Total service revenues from external customers			30,384			12,332			12,840			25,055			1,023			12,324			1,055			95,013
Operating costs and expenses, excluding depreciation and amortization			25,222			7,159			6,773			15,178			862			8,393			1,026			64,613
	Elimination of intersegment amount		(1,268	)		(5,294	)		(1,373	)		(8,597	)		(398	)		(1,880	)		(54	)		(18,864	)
	US GAAP adjustments		299			21			18			175			(4	)		6			(1	)		514
			24,253			1,886			5,418			6,756			460			6,519			971			46,263
	Unallocated corporate amount																							1,837
Total operating costs and expenses, excluding depreciation and amortization																								48,100
Depreciation and amortization			12,344			624			461			1,692			286			3,371			424			19,202
	US GAAP adjustments		(9	)		(1	)		—			(1	)		—			(1	)		(1	)		(13	)
			12,335			623			461			1,691			286			3,370			423			19,189
	Unallocated corporate amount																							37
Total depreciation and amortization																								19,226

F-35

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
Income from operations			4,295			5,876			5,652			8,389			153			6,750			(368	)		30,747
	Elimination of intersegment amount		(9,885	)		4,001			1,373			8,356			394			(4,293	)		54			—
	US GAAP adjustments		(614	)		(54	)		(64	)		(137	)		(270	)		(22	)		(25	)		(1,186	)
			(6,204	)		9,823			6,961			16,608			277			2,435			(339	)		29,561
	Unallocated corporate amount																							(1,874	)
Total income from operations																								27,687
Income before income tax			4,124			5,814			5,675			8,401			143			6,746			(374	)		30,529
	Elimination of intersegment amount		(9,885	)		4,001			1,373			8,356			394			(4,293	)		54			—
	US GAAP adjustments		(122	)		(43	)		(53	)		(114	)		(267	)		(18	)		(8	)		(625	)
			(5,883	)		9,772			6,995			16,643			270			2,435			(328	)		29,904
	Unallocated corporate amount																							(1,530	)
Total income before income tax																								28,374
Segment assets			298,621			19,616			20,522			37,182			3,006			37,512			10,919			427,378
	US GAAP adjustments		(52,674	)		(3,504	)		(2,059	)		(2,427	)		(224	)		(929	)		(221	)		(62,038	)
			245,947			16,112			18,463			34,755			2,782			36,583			10,698			365,340
	Unallocated corporate amount																							48,062
Total segment assets																								413,402
Expenditures for segment assets			12,749			1,655			1,388			6,942			151			2,048			397			25,330
	Unallocated corporate amount																							52
Total expenditures for segment assets																								25,382

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
As of and for the Year Ended December 31, 2001
Service revenues for reportable segments			73,536			20,731			20,682			57,595			1,341			38,571			2,608			215,064
	Elimination of intersegment amount		(18,872	)		(2,608	)		(1	)		(828	)		(3	)		(9,813	)		(88	)		(32,213	)
	US GAAP adjustments		1,799			(128	)		(67	)		(94	)		6			32			(21	)		1,527
Total service revenues from external customers			56,463			17,995			20,614			56,673			1,344			28,790			2,499			184,378
Operating costs and expenses, excluding depreciation and amortization			41,991			11,131			14,447			31,557			1,157			21,867			1,232			123,382
	Elimination of intersegment amount		(2,951	)		(7,388	)		(2,300	)		(13,673	)		(379	)		(5,368	)		(154	)		(32,213	)
	US GAAP adjustments		3,246			313			324			1,729			46			395			44			6,097
			42,286			4,056			12,471			19,613			824			16,894			1,122			97,266

F-36

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

			Fixed-Line
												Cellular						Internet
			Local			DLD			ILD			Service			Paging			and Data			All Other			Total
			NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
		Unallocated corporate amount																							3,589
Total operating costs and expenses, excluding depreciation and amortization																									100,855
Depreciation and amortization				23,947			1,448			821			4,405			485			7,703			479			39,288
	US GAAP adjustments			(345	)		(25	)		(15	)		(46	)		(5	)		(23	)		(6	)		(465	)
				23,602			1,423			806			4,359			480			7,680			473			38,823
	Unallocated corporate amount																								97
Total depreciation and amortization																									38,920
Income from operations				7,598			8,152			5,414			21,633			(301	)		9,001			897			52,394
	Elimination of intersegment amount			(15,921	)		4,780			2,299			12,845			376			(4,445	)		66			—
	US GAAP adjustments			(1,102	)		(416	)		(376	)		(1,777	)		(35	)		(340	)		(59	)		(4,105	)
				(9,425	)		12,516			7,337			32,701			40			4,216			904			48,289
	Unallocated corporate amount																								(3,686	)
Total income from operations																									44,603
Income before income tax				6,110			8,116			5,411			21,454			(315	)		9,355			869			51,000
	Elimination of intersegment amount			(15,921	)		4,780			2,299			12,845			376			(4,445	)		66			—
	US GAAP adjustments			772			(381	)		(156	)		(684	)		(28	)		(291	)		(10	)		(778	)
				(9,039	)		12,515			7,554			33,615			33			4,619			925			50,222
	Unallocated corporate amount																								(3,341	)
Total income before income tax																									46,881
Segment assets				271,271			16,364			19,176			50,179			2,323			70,888			11,221			441,422
	US GAAP adjustments			(56,130	)		(3,058	)		(2,594	)		(3,561	)		(154	)		(4,306	)		(2,142	)		(71,945	)
				215,141			13,306			16,582			46,618			2,169			66,582			9,079			369,477
	Unallocated corporate amount																								41,937
Total segment assets																									411,414
Expenditures for segment assets				17,425			4,663			635			12,680			2			16,173			1,241			52,819
	Unallocated corporate amount																								116
Total expenditures for segment assets																									52,935

F-37

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
As of and for the year ended December 31, 2002
Service revenues for reportable segments			67,950			16,135			15,720			63,337			1,059			40,525			2,904			207,630
	Elimination of intersegment amount		(18,343	)		(2,103	)		(1	)		(867	)		(5	)		(9,344	)		(181	)		(30,844	)
	US GAAP adjustments		2,184			(17	)		(17	)		416			—			33			(24	)		2,575
Total service revenues from external customers			51,791			14,015			15,702			62,886			1,054			31,214			2,699			179,361
Operating costs and expenses, excluding depreciation and amortization			34,112			7,510			11,453			33,150			859			19,130			624			106,838
	Elimination of intersegment amount		(3,896	)		(5,453	)		(2,500	)		(13,419	)		(163	)		(5,243	)		(170	)		(30,844	)
	US GAAP adjustments		2,000			72			96			233			14			676			274			3,365
			32,216			2,129			9,049			19,964			710			14,563			728			79,359
	Unallocated corporate amount																							4,003
Total operating costs and expenses, excluding depreciation and amortization																								83,362
Depreciation and amortization			23,445			1,353			545			5,304			374			8,974			751			40,746
	US GAAP adjustments		(358	)		(21	)		(5	)		(77	)		(5	)		(125	)		(5	)		(596	)
			23,087			1,332			540			5,227			369			8,849			746			40,150
	Unallocated corporate amount																							148
Total depreciation and amortization																								40,298
Income from operations			10,393			7,272			3,722			24,883			(174	)		12,421			1,529			60,046
	Elimination of intersegment amount		(14,447	)		3,350			2,499			12,552			158			(4,101	)		(11	)		—
	US GAAP adjustments		542			(68	)		(108	)		260			(9	)		(518	)		(293	)		(194	)
			(3,512	)		10,554			6,113			37,695			(25	)		7,802			1,225			59,852
	Unallocated corporate amount																							(4,151	)
Total income from operations																								55,701
Income before income tax			10,115			7,310			3,741			25,562			(177	)		12,518			1,489			60,558
	Elimination of intersegment amount		(14,447	)		3,350			2,499			12,552			158			(4,101	)		(11	)		—
	US GAAP adjustments		1,048			(48	)		(82	)		321			(6	)		(346	)		(224	)		663
			(3,284	)		10,612			6,158			38,435			(25	)		8,071			1,254			61,221
	Unallocated corporate amount																							(4,294	)
Total income before income tax																								56,927

F-38

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
Segment assets			260,407			10,510			14,071			61,496			1,448			75,369			14,436			437,737
	US GAAP adjustments		(47,106	)		(810	)		(1,734	)		(4,657	)		(81	)		(9,353	)		(4,077	)		(67,818	)
			213,301			9,700			12,337			56,839			1,367			66,016			10,359			369,919
	Unallocated corporate amount																							58,734
Total segment assets																								428,653
Expenditures for segment assets			17,760			2,728			879			4,709			—			15,965			1,160			43,201
	Unallocated corporate amount																							59
Total expenditures for segment assets																								43,260

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
As of and for the three months ended March 31, 2002 (Unaudited)
Service revenues for reportable segments			16,557			4,002			3,542			15,158			289			10,037			532			50,117
	Elimination of intersegment amount		(4,368	)		(466	)		(—	)		(228	)		(1	)		(2,404	)		(—	)		(7,467	)
	US GAAP adjustments		483			(22	)		(45	)		178			(3	)		(43	)		(5	)		543
Total service revenues from external customers			12,672			3,514			3,497			15,108			285			7,590			527			43,193
Operating costs and expenses, excluding depreciation and amortization			7,489			1,860			2,367			6,775			211			4,490			240			23,432
	Elimination of intersegment amount		(711	)		(1,390	)		(557	)		(3,313	)		(52	)		(1,382	)		(62	)		(7,467	)
	US GAAP adjustments		670			50			67			180			8			162			13			1,150
			7,448			520			1,877			3,642			167			3,270			191			17,115
	Unallocated corporate amount																							824
Total operating costs and expenses, excluding depreciation and amortization																								17,939
Depreciation and amortization			5,854			355			134			1,056			111			2,069			180			9,759
	US GAAP adjustments		(76	)		(6	)		(4	)		(10	)		(1	)		(7	)		(1	)		(105	)
			5,778			349			130			1,046			110			2,062			179			9,654
	Unallocated corporate amount																							32
Total depreciation and amortization																								9,686
Income from operations			3,214			1,787			1,041			7,327			(33	)		3,478			112			16,926
	Elimination of intersegment amount		(3,657	)		924			557			3,085			51			(1,022	)		62			—
	US GAAP adjustments		(111	)		(66	)		(108	)		8			(10	)		(198	)		(17	)		(502	)
			(554	)		2,645			1,490			10,420			8			2,258			157			16,424
	Unallocated corporate amount																							(856	)
Total income from operations																								15,568

F-39

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

		Fixed-Line
											Cellular					Internet
		Local			DLD			ILD			Service		Paging			and Data			All Other		Total
		NT$			NT$			NT$			NT$		NT$			NT$			NT$		NT$
Income before income tax			3,022			1,765			1,041			7,473		(38	)		3,509			90		16,862
	Elimination of intersegment amount		(3,657	)		924			557			3,085		51			(1,022	)		62		—
	US GAAP adjustments		262			(61	)		(85	)		33		(10	)		(195	)		3		(53	)
			(373	)		2,628			1,513			10,591		3			2,292			155		16,809
	Unallocated corporate amount																					(800	)
Total income before income tax																						16,009

F-40

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

		Fixed-Line
											Cellular						Internet
		Local			DLD			ILD			Service			Paging			and Data			All Other			Total
		NT$			NT$			NT$			NT$			NT$			NT$			NT$			NT$
As of and for the three months ended March 31, 2003 (Unaudited)
Service revenues for reportable segments			15,501			3,924			3,818			16,015			186			10,506			430			50,380
	Elimination of intersegment amount		(4,161	)		(668	)		(—	)		(244	)		(1	)		(1,950	)		—			(7,024	)
	US GAAP adjustments		625			25			29			190			—			3			(6	)		866
Total service revenues from external customers			11,965			3,281			3,847			15,961			185			8,559			424			44,222
Operating costs and expenses, excluding depreciation and amortization			7,832			1,679			2,636			8,300			141			4,262			319			25,169
	Elimination of intersegment amount		(847	)		(1,234	)		(658	)		(3,218	)		(22	)		(1,001	)		(44	)		(7,024	)
	US GAAP adjustments		969			30			47			127			4			294			134			1,605
			7,954			475			2,025			5,209			123			3,555			409			19,750
	Unallocated corporate amount																							882
Total operating costs and expenses, excluding depreciation and amortization																								20,632
Depreciation and amortization			5,857			388			101			1,397			78			2,471			283			10,575
	US GAAP adjustments		(65	)		(5	)		(2	)		(13	)		(1	)		(17	)		(—	)		(103	)
			5,792			383			99			1,384			77			2,454			283			10,472
	Unallocated corporate amount																							43
Total depreciation and amortization																								10,515
Income from operations			1,812			1,857			1,081			6,318			(33	)		3,773			(172	)		14,636
	Elimination of intersegment amount		(3,314	)		566			658			2,974			21			(949	)		44			—
	US GAAP adjustments		(279	)		(—	)		(16	)		76			(3	)		(274	)		(140	)		(636	)
			(1,781	)		2,423			1,723			9,368			(15	)		2,550			(268	)		14,000
	Unallocated corporate amount																							(925	)
Total income from operations																								13,075
Income before income tax			1,734			1,875			1,071			6,379			(34	)		3,813			(186	)		14,652
	Elimination of intersegment amount		(3,314	)		566			658			2,974			21			(949	)		44			—
	US GAAP adjustments		(27	)		7			(4	)		107			(2	)		(193	)		(106	)		(218	)
			(1,607	)		2,448			1,725			9,460			(15	)		2,671			(248	)		14,434
	Unallocated corporate amount																							(910	)
Total income before income tax																								13,524

F-41

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Amounts in millions of New Taiwan Dollars, unless stated otherwise)

b. Geographic information

      The users of the Company’s services are mainly from Taiwan, ROC. The revenues it derived outside Taiwan are mainly interconnection fees from other telecommunication carriers. The geographic information for revenues is as follows:

			Six Months		Years Ended				Three Months Ended
	Year Ended		Ended		December 31				March 31
	June 30,		December 31,
	2000		2000		2001		2002		2002		2003
	NT$		NT$		NT$		NT$		NT$		NT$
									(Unaudited)		(Unaudited)
Taiwan, ROC	$	177,130	$	92,654	$	179,607	$	173,127	$	41,714	$	42,822
Overseas		7,918		2,359		4,771		6,234		1,479		1,400
Total	$	185,048	$	95,013	$	184,378	$	179,361	$	43,193	$	44,222

c. Gross sales to major customers

      The Company has no single customer account representing 10% or more of its total revenues for all periods presented.

      The Company has non-revenue generating offices in Hong Kong, Thailand and the United States of America. The geographic information for non-current assets (including investments in unconsolidated companies, property, plant and equipment, intangible assets, and other assets) is as follows:

			December 31
	June 30,								March 31,
	2000		2000		2001		2002		2003
	NT$		NT$		NT$		NT$		NT$
									(Unaudited)
Taiwan, ROC	$	353,978	$	347,396	$	379,254	$	383,366	$	377,021
Outside Taiwan, ROC		1		—		—		—		—
Total	$	353,979	$	347,396	$	379,254	$	383,366	$	377,021

F-42

          No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the ADSs offered by this prospectus, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

TABLE OF CONTENTS

	Page
Prospectus Summary		3
Risk Factors		6
Forward-Looking Statements Contained In This Prospectus May Not Be Realized		17
Use of Proceeds		18
Dividend Policy		18
Dilution		20
Capitalization		20
Exchange Rates		21
Market Price Information for Our Common Shares		22
Selected Financial Data		23
Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
The Taiwan Telecommunications Industry		73
Business		77
Regulation		110
Management		123
Relationship with the Government of the Republic of China		129
Principal Shareholders and Selling Shareholder		130
Shares Eligible for Future Sale		132
Related Party Transactions		134
Description of Share Capital		135
Description of American Depositary Shares		141
The Securities Markets of Taiwan		150
Foreign Investment and Exchange Controls in Taiwan		155
Taxation		159
Underwriting		165
Enforceability of Civil Liabilities		171
Validity of Securities		171
Experts		171
Where You Can Find More Information		172
Index to Financial Statements		F-1

          Through and including        , 2003 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Chunghwa Telecom

Co., Ltd.

75,000,000

American Depositary Shares

Representing

750,000,000 Common Shares

Goldman, Sachs & Co.

Merrill Lynch & Co.

UBS Investment Bank

Credit Suisse First Boston

Daiwa Securities SMBC Hong Kong

Deutsche Bank Securities

CLSA Asia-Pacific Markets

The Hongkong and Shanghai

Banking Corporation Limited

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 6.  Indemnification of Directors and Officers

      The relationships between the registrant and its directors, supervisors and officers are governed by the Republic of China Civil Code, the Statute of Chunghwa Telecom Co., Ltd., the Republic of China Company Law and the registrant’s Articles of Incorporation. There is no written agreement between the registrant and its directors, supervisors and officers governing the rights and obligations of such parties. Each person who was or is party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding by reason of the fact that such person is or was the registrant’s director, supervisor or officer, in the absence of willful misconduct or gross negligence on the part of such person in connection with such person’s performance of duties as a director, supervisor or officer, as the case may be, may be indemnified and held harmless by us to the fullest extent permitted by applicable law. However, it is currently unclear under the Republic of China law whether the registrant is obligated to indemnify and hold harmless such directors, supervisors and officers for liabilities incurred in a suit brought under the federal securities laws of the United States.

Item 7.  Recent Sales of Unregistered Securities

      The registrant has not issued or sold any securities within the past three years.

Item 8.  Exhibits and Financial Statement Schedules

Exhibit Number		Description of Exhibit
	1.1	Form of Underwriting Agreement
	*2.1	Statute of Chunghwa Telecom Co., Ltd. (English translation), last amended on November 14, 2001
	3.1	Articles of Incorporation (English translation), last amended on June 17, 2003
	4.1	Form of Deposit Agreement among Chunghwa Telecom Co., Ltd., The Bank of New York as depositary, and holders and beneficial holders of American depositary shares evidenced by American depositary receipts issued thereunder, including the form of American depositary receipt
	*5.1	Opinion of Baker & McKenzie, Republic of China counsel to Chunghwa Telecom Co., Ltd. as to the legality of the common shares
	*8.1	Opinion of Baker & McKenzie, Republic of China counsel to Chunghwa Telecom Co., Ltd. re Republic of China tax matters (included in Exhibit 5.1)
	23.1	Consent of Deloitte & Touche
	*23.2	Consent of Baker & McKenzie (included in Exhibit 5.1)

* Previously filed.

**  To be filed by amendment.

Item 9.  Undertakings

      The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

II-1

      The undersigned registrant hereby undertakes that:

(1)

For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part to this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2)

For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by a registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-2

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form F-1 and has duly caused this registration statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in Taipei, Taiwan, Republic of China, on June 24, 2003.

CHUNGHWA TELECOM CO., LTD.

By: /s/ SHYUE-CHING LU

   Name: Shyue-Ching Lu

   Title:   President and Chief Executive Officer

      Pursuant to the requirements of the Securities Act of 1933, this registration statement or amendment thereto has been signed on June 24, 2003 by the following persons in the capacities indicated:

Signature	Title
/s/ TAN HO CHEN Tan Ho Chen	Chairman
/s/ SHYUE-CHING LU Shyue-Ching Lu	Director, President and Chief Executive Officer(1)
/s/ OLIVER F. L. YU Oliver F. L. Yu	Director
/s/ JOSEPH JYE-CHERN LYN Joseph Jye-Chern Lyn	Director
/s/ LAI-HSI LEE Lai-Hsi Lee	Director
/s/ YU-HUEI JEA Yu-Huei Jea	Director
/s/ CHUNG-HSIUING WANG Chung-Hsiuing Wang	Director
/s/ CHING-TERN HUANG Ching-Tern Huang	Director
/s/ PETER C. LIN   Peter C. Lin	Director
/s/ JING-TWEN CHEN Jing-Twen Chen	Director

(1) Shyue-Ching Lu is also signing in the capacity of chief financial officer.

II-3

Signature	Title
/s/ TSE-MING CHANG Tse-Ming Chang	Director
/s/ ZSEHONG TSAI Zsehong Tsai	Director
/s/ SHIH-PENG TSAI Shih-Peng Tsai	Director
/s/ YAUH HONG LIN Yauh Hong Lin	Director
/s/ YI MAW LIN Yi Maw Lin	Director
/s/ TSE-MIN CHEN Tse-Min Chen	Chief Accounting Officer

II-4

SIGNATURE OF AUTHORIZED REPRESENTATIVE OF THE REGISTRANT

      Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of Chunghwa Telecom Co., Ltd., has signed this registration statement or amendment thereto in New York, New York on June 24, 2003.

PUGLISI & ASSOCIATES

By:  /s/ DONALD J. PUGLISI

Name: Donald J. Puglisi

Title:  Managing Director

II-5

EXHIBIT INDEX

Exhibit Number		Description of Exhibit
	1.1	Form of Underwriting Agreement
	*2.1	Statute of Chunghwa Telecom Co., Ltd. (English translation), last amended on November 14, 2001
	3.1	Articles of Incorporation (English translation), last amended on June 17, 2003
	4.1	Form of Deposit Agreement among Chunghwa Telecom Co., Ltd., The Bank of New York as depositary, and Holders and Beneficial Holders of American Depositary Shares evidenced by American Depositary Receipts issued thereunder, including the form of American Depositary Receipt
	*5.1	Opinion of Baker & McKenzie, Republic of China counsel to Chunghwa Telecom Co., Ltd. re legality of the common shares
	*8.1	Opinion of Baker & McKenzie, Republic of China counsel to Chunghwa Telecom Co., Ltd. re Republic of China tax matters (included in Exhibit 5.1)
	23.1	Consent of T. N. Soong & Co.
	*23.2	Consent of Baker & McKenzie (included in Exhibit 5.1)
	*24.1	Powers of Attorney (contained on signature pages to registration statement)

* Previously filed.

**  To be filed by amendment.

EX-1.1

                                                                     Exhibit 1.1

                                                  Form of Underwriting Agreement



                           CHUNGHWA TELECOM CO., LTD.

                           AMERICAN DEPOSITARY SHARES
                                  REPRESENTING

                                  COMMON SHARES

                              ---------------------

                             UNDERWRITING AGREEMENT

                              ---------------------

                                                                  ________, 2003
[Name of Representative]
  As Representative of the several Underwriters
    named in Schedule I hereto
c/o [Name of Representative]
    [Address of Representative]

Ladies and Gentlemen:

     The Ministry of Transportation and Communications (the "Selling
Shareholder") of the Republic of China (the "ROC"), representing the government
of the ROC, proposes, subject to the terms and conditions stated herein, to sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of ____________ American Depositary Shares representing ____________ common
shares, par value NT$10 per share ("Common Shares"), of Chunghwa Telecom Co.,
Ltd., a company limited by shares and duly organized and existing under the laws
of the ROC (the "Company"), and, at the election of the Underwriters, up to
________ additional American Depositary Shares representing ________ Common
Shares. The aggregate of ____________ American Depositary Shares representing
____________ Common Shares to be sold by the Selling Shareholder is herein
called the "Firm ADSs" and the aggregate of ________ American Depositary Shares
representing ________ additional Common Shares to be sold by the Selling
Shareholder is herein called the "Optional ADSs". The Firm ADSs and the Optional
ADSs that the Underwriters elect to purchase pursuant to Section 2 hereof are
herein collectively called the "ADSs". The Common Shares represented by the Firm
ADSs are hereinafter called the "Firm Shares" and the Common Shares represented
by the Optional ADSs are hereinafter called the "Optional Shares" and the Firm
Shares and the Optional Shares are herein collectively called the "Shares."
References herein to "you" refers to the Representative of the several
Underwriters named in Schedule I hereto.

     The ADSs are to be issued pursuant to a deposit agreement (the "Deposit
Agreement"), dated as of -, 2003, among the Company, The Bank of New York, as
depositary (the "Depositary"), and holders and beneficial owners from time to
time of the American Depositary Receipts (the "ADRs") issued by the Depositary
and evidencing the ADSs. Each ADS will initially represent ten Common Shares
deposited pursuant to the Deposit Agreement.

     It is understood by all the parties that the Company and the Selling
Shareholder are

concurrently entering into (i) an agreement (the "[U-1] Underwriting Agreement")
providing for the sale by the Selling Shareholder of up to a total of ________
American Depositary Shares, each initially representing ten Common Shares,
including the option to purchase additional American Depositary Shares
thereunder, through arrangements with certain underwriters (the "[U-1]
Underwriters"), for whom [U-1] is acting as lead manager, and (ii) an agreement
(the "[U-2] Underwriting Agreement") providing for the sale by the Selling
Shareholder of up to a total of ________ American Depositary Shares each
initially representing ten Common Shares, including the option to purchase
additional American Depositary Shares thereunder, through arrangements with
certain underwriters (the "[U-2] Underwriters"), for whom [U-2] is acting as
lead manager. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement, the [U-1] Underwriting Agreement and
the [U-2] Underwriting Agreement are hereby made expressly conditional on one
another.

     Except as the context may otherwise require, the [U-1] Underwriters and the
[U-2] Underwriters are referred to herein collectively as the "Other
Underwriters" and the [U-1] Underwriting Agreement and the [U-2] Underwriting
Agreement are referred to herein collectively as the "Other Underwriting
Agreements".

     The Underwriters hereunder, the [U-1] Underwriters and the [U-2]
Underwriters are simultaneously entering into an Agreement among Underwriting
Syndicates (the "Agreement among Syndicates"), which provides for, among other
things, that Goldman Sachs International shall act as the global coordinator
(the "Global Coordinator") for the offering of the ADSs. The Company hereby
confirms the appointment of the Global Coordinator by the Underwriters and the
Other Underwriters. [Name of Representative], [U-1] and [U-2] are hereinafter
collectively referred to as the "Joint Bookrunners". It is understood and agreed
that the [Global Coordinator] [Joint Bookrunners] in [its] [their] sole
discretion shall have the authority to allocate or reallocate all or some of the
aggregate total amount of the American Depositary Shares and additional American
Depositary Shares under this Agreement and the Other Underwriting Agreements
among the Underwriters and the Other Underwriters.

     Two forms of prospectus are to be used in connection with the offering and
sale of ADSs contemplated by the foregoing, one relating to ADSs offered or sold
within the United States (the "U.S. Prospectus") and one relating to the ADSs
offered or sold outside the United States (the "International Prospectus"). The
U.S. Prospectus will be identical to the International Prospectus except for
certain substitute pages, and copies of these prospectuses have been provided to
you. References herein to any "Prospectus" or "Preliminary Prospectus" (each as
defined below), whether as amended or supplemented, shall include both the U.S.
Prospectus and the International Prospectus.

     1. (a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:

          (i) A registration statement on Form F-1 (File No. 333-13074) (the
     "Initial Registration Statement") in respect of the Shares has been filed
     with the United States Securities and Exchange Commission (the
     "Commission"); the Initial Registration Statement and any post-effective
     amendment thereto, each in the form heretofore delivered to you, and,
     excluding exhibits thereto, to you for each of the other Underwriters, have
     been declared effective by the Commission in such form; other than a
     registration statement, if any, increasing the size of the offering (a
     "Rule 462(b)

                                       2

     Registration Statement"), filed pursuant to Rule 462(b) under the United
     States Securities Act of 1933, as amended (the "Act"), which became
     effective upon filing, no other document with respect to the Initial
     Registration Statement has heretofore been filed with the Commission; and
     no stop order suspending the effectiveness of the Initial Registration
     Statement, any post-effective amendment thereto or the Rule 462(b)
     Registration Statement, if any, has been issued and, to the knowledge of
     the Company after due inquiry, no proceeding for that purpose has been
     initiated or threatened by the Commission (any preliminary prospectus
     included in the Initial Registration Statement or filed with the Commission
     pursuant to Rule 424(a) of the rules and regulations of the Commission
     under the Act is hereinafter called a "Preliminary Prospectus"); the
     various parts of the Initial Registration Statement and the Rule 462(b)
     Registration Statement, if any, including all exhibits thereto and
     including the information contained in the form of final prospectus filed
     with the Commission pursuant to Rule 424(b) under the Act in accordance
     with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
     be part of the Initial Registration Statement at the time it was declared
     effective, each as amended at the time such part of the Initial
     Registration Statement became effective or such part of the Rule 462(b)
     Registration Statement, if any, became or hereafter becomes effective, are
     hereinafter collectively called the "Registration Statement"; and such
     final prospectus, in the form first filed pursuant to Rule 424(b) under the
     Act, is hereinafter called the "Prospectus";

          (ii) No order preventing or suspending the use of any Preliminary
     Prospectus has been issued by the Commission, and each Preliminary
     Prospectus, at the time of filing thereof, conformed in all material
     respects to the requirements of the Act and the rules and regulations of
     the Commission thereunder, and did not contain an untrue statement of a
     material fact or omit to state a material fact required to be stated
     therein or necessary to make the statements therein, in the light of the
     circumstances under which they were made, not misleading; provided,
     however, that this representation and warranty shall not apply to any
     statements or omissions made in reliance upon and in conformity with
     information furnished in writing to the Company by an Underwriter through
     the Joint Bookrunners expressly for use therein;

          (iii) The Registration Statement conforms, and the Prospectus and any
     further amendments or supplements to the Registration Statement or the
     Prospectus will conform, in all material respects to the requirements of
     the Act and the rules and regulations of the Commission thereunder and the
     Registration Statement and the Prospectus do not and will not, as of the
     applicable effective date as to the Registration Statement and any
     amendment thereto and as of the applicable filing date as to the Prospectus
     and any amendment or supplement thereto, contain an untrue statement of a
     material fact or omit to state a material fact required to be stated
     therein or necessary to make the statements therein not misleading;
     provided, however, that this representation and warranty shall not apply to
     any statements or omissions made in reliance upon and in conformity with
     information furnished in writing to the Company by an Underwriter through
     any Joint Bookrunner expressly for use therein;

          (iv) A registration statement on Form F-6 (File No. 333-______) in
     respect of the ADSs representing Shares has been filed with the Commission;
     such registration statement in the form heretofore delivered to you and,
     excluding exhibits, to you for each of the other Underwriters, has been
     declared effective by the Commission in such form;

                                       3

     no other document with respect to such registration statement has
     heretofore been filed with the Commission; no stop order suspending the
     effectiveness of such registration statement has been issued and, to the
     knowledge of the Company after due inquiry, no proceeding for that purpose
     has been initiated or threatened by the Commission (the various parts of
     such registration statement, including all exhibits thereto, each as
     amended at the time such part of the registration statement became
     effective, being hereinafter called the "ADS Registration Statement"); and
     the ADS Registration Statement when it became effective conformed, and any
     further amendments thereto will conform, in all material respects to the
     requirements of the Act and the rules and regulations of the Commission
     thereunder, and did not and will not, as of the applicable effective date,
     contain an untrue statement of a material fact or omit to state a material
     fact required to be stated therein or necessary to make the statements
     therein not misleading;

          (v) A registration statement on Form 8-A (File No. ______) in respect
     of the registration of the Shares and the ADSs under the United States
     Securities Exchange Act of 1934, as amended (the "Exchange Act") has been
     filed with the Commission; such registration statement in the form
     heretofore delivered to you and, excluding exhibits, to you for each of the
     other Underwriters, has been declared effective by the Commission in such
     form; no other document with respect to such registration statement has
     heretofore been filed with the Commission; no stop order suspending the
     effectiveness of such registration statement has been issued and, to the
     knowledge of the Company after due inquiry, no proceeding for that purpose
     has been initiated or threatened by the Commission (the various parts of
     such registration statement, including all exhibits thereto, each as
     amended at the time such part of the registration statement became
     effective, being hereinafter called the "Form 8-A Registration Statement");
     and the Form 8-A Registration Statement when it became effective conformed,
     and any further amendments thereto will conform, in all material respects
     to the requirements of the Exchange Act and the rules and regulations of
     the Commission thereunder, and did not and will not, as of the applicable
     effective date, contain an untrue statement of a material fact or omit to
     state a material fact required to be stated therein or necessary to make
     the statements therein not misleading;

          (vi) The Company has filed with the Director General of Kanto Local
     Finance Bureau of the Ministry of Finance of Japan (the "KLFB") a
     securities registration statement with respect to the public offering
     without listing in Japan of the Shares as part of the offering contemplated
     hereunder (the "Japanese POWL") and amendments to such securities
     registration statement pursuant to the Securities and Exchange Law of
     Japan; a further amendment to such securities registration statement in the
     form heretofore delivered to you is proposed to be filed by the Company
     with the KLFB promptly after the execution of this Agreement (such
     securities registration statement and all such amendments, collectively,
     the "Japanese Registration Statement"); the registration made under the
     Japanese Registration Statement has been declared effective by KLFB; no
     other document with respect to the Japanese Registration Statement has
     heretofore been filed with the KLFB; no stop order suspending the
     effectiveness of the Japanese Registration Statement has been issued and,
     to the knowledge of the Company after due inquiry, no proceeding for that
     purpose has been initiated or threatened by the KLFB; and the Japanese
     Registration Statement when it became effective conformed, and any further
     amendments thereto will conform, in all

                                       4

     material respects to the requirements of the Securities and Exchange Law of
     Japan and the cabinet orders and ministerial ordinances and other rules and
     regulations thereunder (the "Japanese Rules and Regulations"), and did not
     and will not, as of the applicable effective date, contain an untrue
     statement of a material fact or omit to state a material fact required to
     be stated therein or necessary to make the statements therein not
     misleading;

          (vii) The Company has prepared a preliminary prospectus with respect
     to the Japanese POWL (the "Japanese Preliminary Prospectus") and intends
     to prepare a supplement or supplements to the Japanese Preliminary
     Prospectus which together with the Japanese Preliminary Prospectus will
     form a final prospectus (the "Japanese Final Prospectus") (the Japanese
     Preliminary Prospectus and the Japanese Final Prospectus, collectively, the
     "Japanese Prospectus"); and the Japanese Preliminary Prospectus at the time
     of issue thereof conformed, and the Japanese Final Prospectus at the time
     of issue thereof will conform, in all material respects to the requirements
     of the Securities and Exchange Law of Japan and the Japanese Rules and
     Regulations, and the Japanese Preliminary Prospectus at the time of issue
     thereof did not, and the Japanese Final Prospectus at the time of issue
     thereof will not, contain an untrue statement of a material fact or omit to
     state a material fact required to be stated therein or necessary to make
     the statements therein not misleading;

          (viii) The Company has not sustained since the date of the latest
     audited financial statements included in the Prospectus any material loss
     or interference with its business from fire, explosion, flood, earthquake
     or other calamity, whether or not covered by insurance, or from any labor
     dispute or court or governmental action, order or decree, otherwise than as
     set forth or contemplated in the Prospectus; and, since the respective
     dates as of which information is given in the Registration Statement and
     the Prospectus, there has not been any change in the capital stock,
     short-term debt or long-term debt of the Company or any material adverse
     change, or any development involving a prospective material adverse change,
     in or affecting the general affairs, management, financial position,
     shareholders' equity, results of operations or otherwise of the Company and
     its subsidiaries, otherwise than as set forth or contemplated in the
     Prospectus;

          (ix) The Company has good and marketable title to all real property
     and good and marketable title to all personal property owned by it, in each
     case free and clear of all liens, encumbrances, charges, claims, third
     party rights or interests, defects and any other restrictions, except such
     as are set forth in the Prospectus or such as do not materially affect the
     value of such property and do not interfere with the use made and proposed
     to be made of such property by the Company; and any real property and
     buildings held under lease by the Company are held by it under valid,
     subsisting and enforceable leases with such exceptions as are not material
     and do not materially interfere with the use made and proposed to be made
     of such property and buildings by the Company and no material default (or
     event which with notice or lapse of time, or both, would constitute such a
     default) by the Company has occurred and is continuing under any of such
     leases; and the Company does not own, operate, manage or have any other
     right or interest in any other material real property of any kind except as
     reflected in the consolidated balance sheet of the Company as of March 31,
     2003 included in the Prospectus, and no other real properties are necessary
     for the Company

                                       5

     for the carrying on of the business of the Company in the manner set forth
     in the Prospectus other than as would not, individually or in the
     aggregate, have a material adverse effect on the combined financial
     position, shareholders' equity or results of operations of the Company;

          (x) The Company has been duly incorporated and is validly existing as
     a company limited by shares organized under the laws of the ROC, with power
     and authority (corporate and other) to own, use, lease and operate its
     properties and conduct its business in the manner as set forth in the
     Prospectus; the Company does not conduct any business, and does not own or
     lease any properties, outside of the ROC; and the Articles of
     Incorporation, the business license and other constituent documents of the
     Company comply with the requirements of applicable laws, statute and
     regulations of the ROC and are in full force and effect;

          (xi) ____________, a corporation duly organized and validly existing
     under the laws of Hong Kong (the "Subsidiary"), is the Company's only
     "subsidiary" within the meaning of Rule I-02 of Regulation S-X under the
     Act; all of the issued shares of capital stock of the Subsidiary have been
     duly and validly authorized and issued, are fully paid and non-assessable
     and are owned directly by the Company, free and clear of all liens,
     encumbrances, third party rights or interests, equities or claims; the
     Subsidiary is not a "significant subsidiary" within the meaning of Rule
     1-02 of Regulation S-X under the Act; and the Subsidiary does not have any
     operations or conduct any business, and does not own any assets or lease
     any properties;

          (xii) The Company has an authorized and a paid-in capitalization as
     set forth in the Prospectus, and all of the issued shares of capital stock
     of the Company have been duly and validly authorized and issued, are fully
     paid and non-assessable and conform to the description of the Common Shares
     contained in the Prospectus; all of the Common Shares (including the
     Shares) have been duly listed and admitted for trading on the Taiwan Stock
     Exchange (the "Taiwan Stock Exchange"); the holders of outstanding shares
     of capital stock of the Company are not entitled to preemptive or other
     rights to acquire the Shares or the ADSs; except as set forth in the
     Prospectus, there are no outstanding securities convertible into or
     exchangeable for, or warrants, rights or options to purchase from the
     Company, or obligations of the Company to issue, the Common Shares or any
     other class of capital stock of the Company; the Shares may be freely
     deposited by the Selling Shareholder with the Depositary against issuance
     of ADRs evidencing ADSs; the ADSs are freely transferable by the Selling
     Shareholder to or for the account of the several Underwriters and (to the
     extent set forth in the Prospectus) the initial purchasers thereof; and
     there are no restrictions on subsequent transfers of the Shares and the
     ADSs under the laws of the ROC and of the United States, except as set
     forth in the Prospectus under the captions "Description of Share Capital",
     "Description of American Depositary Shares", and "Foreign Investment and
     Exchange Controls in Taiwan";

          (xiii) Each of this Agreement and the Other Underwriting Agreements
     has been duly authorized, executed, and delivered by the Company;

          (xiv) The Deposit Agreement has been duly authorized, executed and
     delivered by the Company, and constitutes a valid and legally binding
     agreement of the

                                       6

     Company, enforceable in accordance with its terms, subject, as to
     enforceability, to bankruptcy, insolvency, fraudulent transfer, moratorium,
     reorganization and similar laws of general applicability relating to or
     affecting creditors' rights and to general equity principles; upon issuance
     by the Depositary of ADRs evidencing ADSs against the deposit of Shares in
     respect thereof in accordance with the provisions of the Deposit Agreement,
     such ADRs will be duly and validly issued and the persons in whose names
     the ADRs are registered will be entitled to the rights specified therein
     and in the Deposit Agreement; and the Deposit Agreement and the ADRs
     conform in all material respects to the descriptions thereof contained in
     the Prospectus;

          (xv) All consents, approvals, authorizations, orders, registrations,
     filings, clearances and qualifications of or with any court or governmental
     agency or body or any stock exchange authorities (hereinafter referred to
     as a "Governmental Agency") having jurisdiction over the Company or any of
     its properties (hereinafter referred to as "Governmental Authorizations")
     required for the deposit of Shares, and the issuance of ADSs in respect
     thereof and for the authorization, execution, delivery and performance by
     the Company of this Agreement, the Other Underwriting Agreements and the
     Deposit Agreement to be duly and validly authorized have been obtained or
     made and are in full force and effect and no such Governmental
     Authorization has been withdrawn or is subject to any condition precedent
     which has not been fulfilled or performed, except for (A) such filings, if
     any, required by the ROC "Rules for Handling Issuance and Offer of Overseas
     Securities by Issuers", (B) the approval of the ROC Central Bank of China
     for foreign exchange settlements and payments contemplated by the Deposit
     Agreement, (C) the approval of the Ministry of Economic Affairs of the ROC
     for the Company's corporate amendment registration with respect to the
     Shares, (D) the application to the Taiwan Stock Exchange for listing of the
     Shares on the Taiwan Stock Exchange, and (E) reports to the ROC Central
     Bank of China regarding (1) conversion from New Taiwan dollars into United
     States dollars for payment of any dividends or other amounts contemplated
     by the Deposit Agreement, and (2) the names and telephone numbers of local
     agents in the ROC appointed by the holders of the ADSs upon their
     withdrawal of the Shares represented by the ADSs from the Company's
     American Depositary Shares facility;

          (xvi) Other than as set forth in the Prospectus, all dividends and
     other distributions declared and payable in respect of the capital stock of
     the Company may under the current laws and regulations of the ROC be paid
     to the holders of Common Shares in New Taiwan dollars (including any such
     dividends or distributions to be paid to the Depositary) that may be
     converted into foreign currency that may be freely transferred out of the
     ROC, and all such dividends and other distributions will not be subject to
     withholding or other taxes under the laws and regulations of the ROC and
     are otherwise free and clear of any other tax, withholding or deduction in
     the ROC and without the necessity of obtaining any Governmental
     Authorization in the ROC;

          (xvii) The deposit of the Shares being deposited with the Depositary
     against issuance of the ADRs evidencing the ADSs, the compliance by the
     Company with all of the provisions of this Agreement, the Other
     Underwriting Agreements and the Deposit Agreement and the consummation of
     the transactions herein and therein contemplated will not conflict with or
     result in a breach or violation of any of the terms or provisions of, or
     constitute a default under, any indenture, mortgage, deed of trust, loan
     agreement or

                                       7

     other agreement or instrument to which the Company is a party or by which
     the Company is bound or to which any of the property or assets of the
     Company is subject other than such conflicts, breaches, violations or
     defaults which, individually or in the aggregate, would not have a material
     adverse effect on the business, operations, general affairs, condition
     (financial or otherwise), shareholders' equity or results of operations of
     the Company ("Material Adverse Effect"), nor will such action result in any
     violation of the provisions of the Articles of Incorporation, business
     licenses, government concessions or other constituent documents of the
     Company or any law or statute or any order, rule or regulation of any
     Governmental Agency having jurisdiction over the Company or any of its
     properties, including the Telecommunications Act of the ROC, the Statute of
     Chunghwa Telecom Co., Ltd., the Statute Governing Privatization of State
     Owned Enterprises, the Law Governing Administration of State Owned
     Enterprises, the Audit Law of the ROC and the Budget Law of the ROC;

          (xviii) The Company is not (A) in violation of its Articles of
     Incorporation, business license, government concessions or other
     constituent documents, (B) in default in the performance or observance of
     any obligation, agreement, covenant or condition contained in any licenses,
     indenture, mortgage, deed of trust, loan agreement, lease or other
     agreement or instrument to which it is a party or by which it or any of its
     properties may be bound, except such defaults which individually or in the
     aggregate would not have a Material Adverse Effect, or (C) in violation or
     contravention of any law or statute or any order, rule or regulation of any
     Governmental Agency having jurisdiction over the Company or any of its
     properties;

          (xix) Other than as set forth in the Prospectus, so long as this
     Agreement and the Other Underwriting Agreements or any documents which are
     deemed "receipts" under ROC Stamp Duty Law are executed outside of the ROC,
     no stamp or other issuance or transfer taxes or duties and no capital
     gains, income, withholding or other taxes are payable by or on behalf of
     the Underwriters in the ROC or to any political subdivision or taxing
     authority thereof or therein in connection with (A) the deposit with the
     Depositary of Shares by the Selling Shareholder against the issuance of
     ADRs evidencing ADSs, (B) the sale and delivery by the Selling Shareholder
     of the ADSs representing the Shares to or for the respective accounts of
     the Underwriters, (C) the sale and delivery outside the ROC by the
     Underwriters of the ADSs representing the Shares to the initial purchasers
     thereof or (D) the execution, delivery and performance of this Agreement,
     the Other Underwriting Agreements and the Deposit Agreement (other than any
     income tax that may be levied on the income of the Underwriters or the
     Other Underwriters whose income may otherwise be subject to ROC tax or
     withholding, if any, with respect to such income tax);

          (xx) Neither the Company nor the Subsidiary has taken, directly or
     indirectly, any action which was designed to or which has constituted or
     which might reasonably be expected to cause or result in stabilization or
     manipulation of the price of any security of the Company to facilitate the
     sale or resale of the Shares and ADSs;

          (xxi) The statements set forth in the Prospectus under the captions
     "Description of Share Capital" and "Description of American Depositary
     Shares", insofar as they purport to constitute a summary of the terms of
     the Common Shares and the ADSs, respectively, and under the captions
     "Taxation", "Regulation", "Underwriting",

                                       8

     "The Securities Markets of Taiwan" and "Foreign Investment and Exchange
     Controls in the Taiwan", insofar as they purport to describe the provisions
     of the laws and documents referred to therein, are accurate, complete and
     fair;

          (xxii) Other than as set forth in the Prospectus, there are no legal
     or governmental proceedings pending to which the Company is a party or of
     which any property of the Company is the subject (i) which, if determined
     adversely to the Company, would individually or in the aggregate have a
     Material Adverse Effect, or (ii) that are required to be set forth in the
     Registration Statement or the Prospectus and are not so set forth; and, to
     the Company's knowledge after due inquiry, no such proceedings are
     threatened or contemplated by any Governmental Agency or by others;

          (xxiii) The Company is not an "investment company", as such term is
     defined in the Investment Company Act of 1940, as amended (the "Investment
     Company Act");

          (xxiv) The Company has all licenses, consents, permits,
     authorizations, approvals, certificates and orders and other concessions of
     and from all, and is not required to make any declarations and filings with
     any, Governmental Agencies that are necessary to own, lease, license and
     use its properties and conduct its businesses in the manner as set forth in
     the Prospectus, and such licenses, consents, permits, authorizations,
     approvals, certificates, orders or concessions contain no materially
     burdensome restrictions or conditions not set forth in the Registration
     Statement or the Prospectus; the Company has no reason to believe that the
     Ministry of Transportation and Communications, the Directorate General of
     Telecommunications or any other Governmental Agency is considering
     modifying, suspending or revoking any such licenses, consents, permits,
     authorizations, approvals, certificates, orders or concessions, and the
     Company is in compliance with the provisions of all such licenses,
     consents, permits, authorizations, approvals , orders and concessions in
     all material respects;

          (xxv) The Company is not a Passive Foreign Investment Company ("PFIC")
     within the meaning of Section 1297 (a) of the United States Internal
     Revenue Code of 1986, as amended, and is not likely to become a PFIC;

          (xxvi) T.N. Soong & Co., an Associate Member Firm of Deloitte Touche
     Tohmatsu effective April 22, 2002, who have certified certain financial
     statements of the Company, are independent public accountants of the
     Company as required by the Act and the rules and regulations of the
     Commission thereunder; and the Company maintains a system of internal
     accounting controls sufficient to provide reasonable assurance that (A)
     transactions are executed in accordance with management's general or
     specific authorizations; (B) transactions are recorded as necessary to
     permit preparation of financial statements in conformity with generally
     accepted accounting principles in the United States ("US GAAP"); (C) access
     to assets is permitted only in accordance with management's general or
     specific authorization; (D) the recorded accountability for assets is
     compared with existing assets at reasonable intervals and appropriate
     actions taken with respect to any differences; and (E) the Company has made
     and kept books, records and accounts which, in reasonable detail,
     accurately and fairly reflect the transactions and dispositions of assets
     of such entity and provide a sufficient basis for the preparation of
     financial statements in accordance with US GAAP;

                                       9


          (xxvii) The Registration Statement, the Preliminary Prospectus, the
     Prospectus, the ADS Registration Statement, the Form 8-A Registration
     Statement, the Japanese Registration Statement and the Japanese Prospectus,
     the filing of the Registration Statement, the Prospectus, the ADS
     Registration Statement and the Form 8-A Registration Statement with the
     Commission and the filing of the Japanese Registration Statement and the
     Japanese Prospectus with the KLFB have each been duly authorized by and on
     behalf of the Company, and the Registration Statement, the ADS Registration
     Statement and the Form 8-A Registration Statement and the Japanese
     Registration Statement have each been duly executed pursuant to such
     authorization by and on behalf of the Company;

          (xxviii) The Company owns or has the legal right to use, or can
     acquire on reasonable terms, all patents, patent licenses, inventions,
     copyrights, trademarks, service marks, trade names, domain names and
     know-how (including trade secrets and other unpatented and/or unpatentable
     proprietary or confidential information, systems or procedures),
     information, proprietary rights and processes ("Intellectual Property")
     necessary to conduct its business as currently conducted and as proposed to
     be conducted, and the Company has not received any notice or claim of
     infringement of or conflict with asserted rights of others with respect to
     any of the foregoing which, individually or in the aggregate, if the
     subject of an unfavorable decision, ruling or finding, would result in any
     Material Adverse Effect; in conducting its business activities, the Company
     has not infringed any patent, copyright, title, trademark, service mark,
     trade name, domain name or other intellectual property rights already
     registered by a third party in the ROC or other jurisdiction;

          (xxix) Other than as set forth in the Prospectus, the Company has no
     obligation to provide retirement, death or disability benefits to any of
     the present or past employees of the Company or the Subsidiary, or to any
     other person that would, individually or in the aggregate, have a Material
     Adverse Effect;

          (xxx) Other than as set forth in the Prospectus, no material labor
     dispute, work stoppage, slow down or other conflict with the employees of
     the Company exists or, to the knowledge of the Company, is threatened;

          (xxxi) The irrevocable and unconditional waiver and agreement of the
     Company in Section 15 hereof not to plead or claim any right of immunity on
     the grounds of sovereignty in any legal action, suit or proceeding based on
     this Agreement is valid and binding under the laws of the ROC;

          (xxxii) Each of this Agreement, the Other Underwriting Agreements and
     the Deposit Agreement is in proper form to be enforceable against the
     Company in the ROC in accordance with its terms; and to ensure the
     legality, validity, enforceability or admissibility into evidence in the
     ROC of this Agreement, it is not necessary that this Agreement, the Other
     Underwriting Agreements or the Deposit Agreement be filed or recorded with
     any court or other authority in the ROC or that any stamp or similar tax in
     the ROC be paid on or in respect of this Agreement, the Other Underwriting
     Agreements, the Deposit Agreement or any other documents to be furnished
     hereunder, it being understood that in court proceedings in the ROC, a
     translation into the Chinese language may be required;

                                       10


          (xxxiii) No holder of any of the Shares or the ADSs after the
     consummation of the transactions contemplated by this Agreement, the Other
     Underwriting Agreements or the Deposit Agreement is or will be subject to
     any liability in respect of any liability of the Company by virtue only of
     its holding of any such Shares or ADSs; except as set forth in the
     Prospectus, there are no limitations on the rights of holders of the Shares
     or the ADSs to hold, vote or transfer their securities;

          (xxxiv) The audited financial statements (and the notes thereto) of
     the Company included in the Prospectus present fairly the financial
     position of the Company as of the dates specified and the results of
     operations and changes in financial position of the Company for the periods
     specified, and such financial statements have been prepared in conformity
     with US GAAP applied on a consistent basis throughout the periods presented
     (other than as described therein); and the summary and selected financial
     data, including the selected unaudited quarterly financial information,
     included in the Prospectus present fairly the information shown therein and
     have been compiled on a basis consistent with that of the audited financial
     statements included therein;

          (xxxv) Under the laws of the ROC, each holder of ADRs evidencing ADSs
     issued pursuant to the Deposit Agreement shall be entitled, subject to the
     Deposit Agreement, to seek enforcement of its rights through the Depositary
     or its nominee registered as representative of the holders of the ADRs in a
     direct suit, action or proceeding against the Company;

          (xxxvi) Except as set forth in the Prospectus or this Agreement, all
     amounts payable by the Company in respect of the ADRs evidencing the ADSs
     or the underlying Shares shall be made free and clear of and without
     deduction for or on account of any taxes imposed, assessed or levied by the
     ROC or any authority thereof or therein nor are any taxes imposed in the
     ROC on, or by virtue of the execution or delivery of, such documents;

          (xxxvii) All returns, reports or filings which ought to have been made
     by or in respect of the Company for taxation purposes have been made and
     all such returns are up to date, correct and on a proper basis, and are not
     the subject of any dispute with the relevant revenue or other appropriate
     authorities; the provisions included in the audited accounts as set out in
     the Prospectus included appropriate provisions required under generally
     accepted accounting principles in the ROC ("ROC GAAP") for all taxation in
     respect of accounting periods ended on or before the accounting reference
     date to which such audited accounts relate for which the Company was then
     or might reasonably be expected thereafter to become or have become liable;
     and the Company has not received notice of any tax deficiency that has been
     asserted against the Company which, if so assessed, would have a Material
     Adverse Effect;

          (xxxviii) The section entitled "Management's Discussion and Analysis
     of Financial Condition and Results of Operations" in the Prospectus
     accurately and fully describes (A) accounting policies which the Company
     believes are the most important in the portrayal of the Company's financial
     condition and results of operations and which require management's most
     difficult, subjective or complex judgments ("critical accounting
     policies"); (B) judgments and uncertainties affecting the application of
     critical accounting policies; and (C) the likelihood that materially
     different amounts would be

                                       11


     reported under different conditions or using different assumptions and an
     explanation thereof;

          (xxxix) The Company's Board of Directors and management have reviewed
     and agreed with the selection, application and disclosure of critical
     accounting policies and have consulted with its legal advisers and
     independent accountants with regards to such disclosure;

          (xl) The section entitled "Management's Discussion and Analysis of
     Financial Condition and Results of Operations--Liquidity and Capital
     Resources" in the Prospectus accurately and fully describes: (A) all
     material trends, demands, commitments, events, uncertainties and risks, and
     the potential effects thereof, that the Company believes would materially
     affect liquidity and are reasonably likely to occur, and (B) neither the
     Company nor the Subsidiary are engaged in any transactions with, or have
     any obligations to, any unconsolidated entities that are contractually
     limited to narrow activities that facilitate the transfer of or access to
     assets by the Company or the Subsidiary, including, without limitation,
     structured finance entities and special purpose entities, or otherwise
     engage in, or have any obligations under, any off-balance sheet
     transactions or arrangements. As used herein in this Section 1, the phrase
     "reasonably likely" refers to a disclosure threshold lower than "more
     likely than not";

          (xli) Since the date of the latest audited financial statements
     included in the Prospectus, the Company has not (A) entered into or assumed
     any contract, (B) incurred or agreed to incur any liability (including any
     contingent liability) or other obligation, (C) acquired or disposed of or
     agreed to acquire or dispose of any business or any other asset or (D)
     assumed or acquired or agreed to assume or acquire any liabilities
     (including contingent liabilities) that would be material to the Company
     and that are not otherwise set forth in the Prospectus;

          (xlii) Except as set forth in the Prospectus, the Company is not
     engaged in any trading activities involving commodity contracts or other
     trading contracts which are not currently traded on a securities or
     commodities exchange and for which the market value cannot be determined;

          (xliii) Except as set forth in the Prospectus, the Company is not
     engaged in any material transactions with its directors, officers,
     management, shareholders, or any other person, including persons formerly
     holding such positions, on terms that are not available to other parties on
     an arm's-length basis;

          (xliv) The Company has provided you true, correct, and complete copies
     of all documentation pertaining to any extension of credit in the form of a
     personal loan made, directly or indirectly, by the Company to any director
     or executive officer of the Company, or to any family member or affiliate
     of any director or executive officer of the Company; and since -, the
     Company has not, directly or indirectly, including through any subsidiary:
     (i) extended credit, arranged to extend credit, or renewed any extension of
     credit, in the form of a personal loan, to or for any director or executive
     officer of the Company, or to or for any family member or affiliate of any
     director or executive officer of the Company; or (ii) made any material
     modification, including any renewal thereof, to any term of any personal
     loan to any director or executive officer of the Company, or any

                                       12


     family member or affiliate of any director or executive officer, which loan
     was outstanding on -;

          (xlv) Any statistical and market-related data included in the
     Prospectus are based on or derived from sources that the Company believes
     to be reliable and accurate, and the Company has obtained the written
     consent to the use of such data from such sources to the extent required;
     and

          (xlvi) All statements of fact contained in the materials prepared by
     the Company for the roadshows and all statements of fact made by the
     Company at the roadshows were at the date thereof in all material respects
     true and accurate and not misleading and all statements of opinion,
     intention or expectation contained in such documents or made at such
     roadshow meetings were truly and honestly held and were or have been made
     after due and careful consideration of all relevant circumstances and were
     based on reasonable assumptions.

          (b) The Selling Shareholder represents and warrants to, and agrees
with, each of the Underwriters and the Company that:

          (i) All Governmental Authorizations required for the deposit of the
     Shares being deposited with the Depositary against issuance of the ADRs
     evidencing the ADSs to be delivered at each Time of Delivery (as defined in
     Section 4 hereof), for the sale and delivery of the ADSs to be sold by the
     Selling Shareholder hereunder and under the Other Underwriting Agreements
     and for the execution and delivery by the Selling Shareholder of this
     Agreement and the Other Underwriting Agreements, have been obtained and are
     in full force and effect, except for approval of the ROC Central Bank of
     China for foreign exchange settlements and payments contemplated by the
     Deposit Agreement; and the Selling Shareholder has power and authority
     (corporate or other) to enter into this Agreement and the Other
     Underwriting Agreements and to sell, assign, transfer and deliver the ADSs
     to be sold by the Selling Shareholder hereunder and under the Other
     Underwriting Agreements;

          (ii) The sale of the ADSs to be sold by the Selling Shareholder
     hereunder and under the Other Underwriting Agreements, the deposit of the
     Shares with the Depositary against issuance of the ADRs evidencing the ADSs
     to be delivered at each Time of Delivery, the compliance by the Selling
     Shareholder with all of the provisions of this Agreement and the Other
     Underwriting Agreements and the consummation of the transactions herein and
     therein contemplated will not conflict with or result in a breach or
     violation of any of the terms or provisions of, or constitute a default
     under, any statute, indenture, mortgage, deed of trust, loan agreement or
     other agreement or instrument to which the Selling Shareholder is a party
     or by which the Selling Shareholder is bound, or to which any of the
     property or assets of the Selling Shareholder is subject other than such
     conflicts, breaches, violations or defaults which, individually or in the
     aggregate, would not have a Material Adverse Effect, nor will such action
     result in any violation of the provisions of any statute or any order, rule
     or regulation of any Governmental Agency having jurisdiction over the
     Selling Shareholder;

          (iii) The Selling Shareholder has good and valid title to the Shares
     to be represented by the ADSs to be sold hereunder and under the Other
     Underwriting

                                       13


     Agreements, and immediately prior to each Time of Delivery the Selling
     Shareholder will have good and valid title to the Shares to be represented
     by the ADSs to be sold by the Selling Shareholder hereunder and under the
     Other Underwriting Agreements, free and clear of all liens, encumbrances,
     equities or claims; and, upon delivery of the ADSs representing such Shares
     and payment therefor pursuant hereto and thereto, good and valid title to
     such ADSs, free and clear of all liens, encumbrances, equities or claims,
     will pass to the several Underwriters or the Other Underwriters, as the
     case may be;

          (iv) Neither the Selling Shareholder nor any of its affiliates, nor
     any person acting on its or their behalf has taken and will take, directly
     or indirectly, any action which is designed to or which has constituted or
     which might reasonably be expected to cause or result in stabilization or
     manipulation of the price of any security of the Company to facilitate the
     sale or resale of the Shares or ADSs;

          (v) No order preventing or suspending the use of any Preliminary
     Prospectus has been issued by the Commission, and each Preliminary
     Prospectus, at the time of filing thereof, conformed in all material
     respects to the requirements of the Act and the rules and regulations of
     the Commission thereunder, and did not contain an untrue statement of a
     material fact or omit to state a material fact required to be stated
     therein or necessary to make the statements therein, in the light of the
     circumstances under which they were made, not misleading;

          (vi) The Registration Statement conforms, and the Prospectus and any
     further amendments or supplements to the Registration Statement or the
     Prospectus will conform, in all material respects to the requirements of
     the Act and the rules and regulations of the Commission thereunder and do
     not and will not, as of the applicable effective date as to the
     Registration Statement and any amendment thereto and as of the applicable
     filing date as to the Prospectus and any amendment or supplement thereto,
     contain an untrue statement of a material fact or omit to state a material
     fact required to be stated therein or necessary to make the statements
     therein not misleading;

          (vii) In order to document the Underwriters' compliance with the
     reporting and withholding provisions of the Tax Equity and Fiscal
     Responsibility Act of 1982 with respect to the transactions herein
     contemplated, the Selling Shareholder will deliver to you prior to or at
     the First Time of Delivery (as defined in Section 4 hereof) a properly
     completed and executed United States Treasury Department Form W-8EXP (or
     other applicable form or statement specified by Treasury Department
     regulations in lieu thereof);

          (viii) Each of this Agreement and the Other Underwriting Agreements
     has been duly authorized, executed and delivered by the Selling
     Shareholder, and is in proper form to be enforceable against the Selling
     Shareholder in accordance with its terms; and to ensure the legality,
     validity, enforceability or admissibility into evidence in the ROC of this
     Agreement, it is not necessary that this Agreement or the Other
     Underwriting Agreements be filed or recorded with any court or other
     authority in the ROC or that any stamp or similar tax in the ROC be paid on
     or in respect of this Agreement, the Other Underwriting Agreements or any
     other documents to be furnished hereunder, it being understood that in
     court proceedings in the ROC, a translation into

                                       14


     the Chinese language may be required;

          (ix) The ADSs delivered at each Time of Delivery by the Selling
     Shareholder will be freely transferable by the Selling Shareholder to or
     for the account of the several Underwriters and (to the extent set forth in
     the Prospectus) the initial purchasers thereof; and there are no
     restrictions on subsequent transfers of the Shares or ADSs under the laws
     of the ROC or of the United States except as set forth in the Prospectus
     under the captions "Description of Share Capital", "Description of American
     Depositary Shares", and "Foreign Investment and Exchange Controls in
     Taiwan";

          (x) The irrevocable and unconditional waiver and agreement of the
     Selling Shareholder in Section 15 hereof not to plead or claim any right of
     immunity on the grounds of sovereignty in any legal action, suit or
     proceeding based on this Agreement is valid and binding under the laws of
     the ROC; and

          (xi) There are no contracts, agreements or understandings between the
     Selling Shareholder and any person that would give rise to a valid claim
     against the Selling Shareholder or any Underwriter for a brokerage
     commission, finder's fee or other like payment in connection with the offer
     and sale of the ADSs.

          (c) Any certificate signed by any officer of the Company or any of its
subsidiaries (pursuant to Section 7(n) or otherwise) delivered to you or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby; and any
certificate signed by or on behalf of the Selling Shareholder as such (pursuant
to Section 7(o) or otherwise) and delivered to the you or to counsel for the
Underwriters pursuant to the terms of this Agreement shall be deemed a
representation and warranty by the Selling Shareholder to each Underwriter as to
the matters covered thereby.

     2. Subject to the terms and conditions herein set forth, (a) the Selling
Shareholder agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Selling
Shareholder, at a purchase price of US$______ per ADS, the number of Firm ADSs
set forth opposite the name of such Underwriter in Schedule I hereto, and (b) in
the event and to the extent that the Underwriters shall exercise the election to
purchase Optional ADSs as provided below, the Selling Shareholder agrees to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Selling Shareholder, at the purchase price per
ADS set forth in clause (a) of this Section 2, that portion of the number of
Optional ADSs as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional ADSs by a fraction the numerator of which is the maximum
number of Optional ADSs which such Underwriter is entitled to purchase as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional ADSs that all of the
Underwriters are entitled to purchase hereunder.

     The Selling Shareholder, as and to the extent indicated in Schedule I
hereto, hereby grants to the Underwriters the right to purchase at their
election up to ______ Optional ADSs at the purchase price per ADS set forth in
the paragraph above, for the sole purpose of covering sales of shares in excess
of the number of Firm ADSs. Any such election to purchase Optional ADSs may be
exercised by written notice from you to the Selling Shareholder, given within a

                                       15


period of 30 calendar days after the date of this Agreement and setting forth
the aggregate number of Optional ADSs to be purchased and the date on which such
Optional ADSs are to be delivered, as determined by you but in no event earlier
than the First Time of Delivery or, unless you, the Company and the Selling
Shareholder otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.

     The [Global Coordinator] [Joint Bookrunners] in [its] [their] sole
discretion shall have the authority to allocate or reallocate all or some of the
ADSs among the Underwriters and the Other Underwriters.

     3. Upon the authorization by you of the release of the Firm ADSs, the
several Underwriters propose to offer the Firm ADSs for sale upon the terms and
conditions set forth in the Prospectus.

     4. (a) The ADSs to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as [Name of Representative] may request upon at least forty-eight hours'
notice to the Selling Shareholder prior to a Time of Delivery (as defined below)
(the "Notification Time"), shall be delivered by or on behalf of the Selling
Shareholder to [Name of Representative], through the facilities of The
Depository Trust Company ("DTC") for the account of such Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor by
wire transfer of Federal (same-day) funds to the account specified by the
Selling Shareholder to [Name of Representative] at least forty-eight hours in
advance to such Time of Delivery. The Company and the Selling Shareholder will
cause the certificates representing the ADSs to be made available for checking
at least twenty-four hours prior to the Time of Delivery (as defined below) with
respect thereto at the office of DTC or its designated custodian (the
"Designated Office").

     The time and date of such delivery and payment shall be, with respect to
the Firm ADSs, 9:30 a.m., New York City time, on -, 2003 or such other time and
date as [Name of Representative], the Company and the Selling Shareholder may
agree upon in writing, and, with respect to the Optional ADSs, 9:30 a.m., New
York City time, on the date specified by [Name of Representative] in the written
notice given by [Name of Representative] of the Underwriters' election to
purchase such Optional ADSs, or such other time and date as [Name of
Representative], the Company and the Selling Shareholder may agree upon in
writing. Such time and date for delivery of the Firm ADSs is herein called the
"First Time of Delivery", such time and date for delivery of the Optional ADSs,
if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".

     (b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the ADSs and any additional documents requested by the Underwriters pursuant
to Sections 7(n) and 7(o) hereof, will be delivered at the offices of Sullivan &
Cromwell LLP, 28th Floor, Nine Queen's Road Central, Hong Kong (the "Closing
Location"), and the ADSs will be delivered as specified in Section 4(a) above,
all at such Time of Delivery. A meeting will be held at the Closing Location at
4:00 p.m., Hong Kong time, on the New York Business Day (as defined herein) next
preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and

                                       16


Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.

     5. (a) The Company agrees with each of the Underwriters:

          (i) To prepare the Prospectus in a form approved by you and to file
     such Prospectus pursuant to Rule 424(b) under the Act not later than the
     Commission's close of business on the second business day following the
     execution and delivery of this Agreement, or, if applicable, such earlier
     time as may be required by Rule 430A(a)(3) under the Act; to make no
     further amendment or any supplement to the Registration Statement or
     Prospectus which shall be disapproved by you promptly after reasonable
     notice thereof; to advise you, promptly after it receives notice thereof,
     of the time when any amendment to the Registration Statement has been filed
     or becomes effective or any supplement to the Prospectus or any amended
     Prospectus has been filed and to furnish you copies thereof; to file
     promptly all reports required to be filed by the Company with the
     Commission pursuant to Section 13(a), 13(c) or 15(d) of the Exchange Act
     subsequent to the date of the Prospectus and for so long as the delivery of
     a prospectus is required in connection with the offering or sale of the
     ADSs; to advise you, promptly after it receives notice thereof, of the
     issuance by the Commission of any stop order or of any order preventing or
     suspending the use of any Preliminary Prospectus or Prospectus, of the
     suspension of the qualification of the ADSs for offering or sale in any
     jurisdiction, of the initiation or threatening of any proceeding for any
     such purpose, or of any request by the Commission for the amending or
     supplementing of the Registration Statement or Prospectus or for additional
     information; and, in the event of the issuance of any stop order or of any
     order preventing or suspending the use of any Preliminary Prospectus or
     Prospectus or suspending any such qualification, promptly to use its best
     efforts to obtain the withdrawal of such order;

          (ii) Promptly from time to time to take such action as you may
     reasonably request to qualify the ADSs for offering and sale under the
     securities laws of such jurisdictions as you may request and to comply with
     such laws so as to permit the continuance of sales and dealings therein in
     such jurisdictions for as long as may be necessary to complete the
     distribution of the ADSs, provided that in connection therewith the Company
     shall not be required to qualify as a foreign corporation or to file a
     general consent to service of process in any jurisdiction;

          (iii) Prior to 10:00 A.M., New York City time, on the New York
     Business Day next succeeding the date of this Agreement and from time to
     time, to furnish the Underwriters with written and electronic copies of the
     Prospectus in New York City in such quantities as you may reasonably
     request, and, if the delivery of a prospectus is required at any time prior
     to the expiration of nine months after the time of issue of the Prospectus
     in connection with the offering or sale of the ADSs and if at such time any
     events shall have occurred as a result of which the Prospectus as then
     amended or supplemented would include an untrue statement of a material
     fact or omit to state any material fact necessary in order to make the
     statements therein, in the light of the circumstances under which they were
     made when such Prospectus is delivered, not misleading, or, if for any
     other reason it shall be necessary during such period to amend or
     supplement the Prospectus in order to comply with the Act, to notify you
     and upon your request to prepare and furnish without charge to each
     Underwriter and to any

                                       17


     dealer in securities as many written and electronic copies as you may from
     time to time reasonably request of an amended Prospectus or a supplement to
     the Prospectus which will correct such statement or omission or effect such
     compliance, and in case any Underwriter is required to deliver a prospectus
     in connection with sales of any of the ADSs at any time nine months or more
     after the time of issue of the Prospectus, upon your request but at the
     expense of such Underwriter, to prepare and deliver to such Underwriter as
     many copies as you may request of an amended or supplemented Prospectus
     complying with Section 10(a)(3) of the Act;

          (iv) To make generally available to its securityholders as soon as
     practicable, but in any event not later than eighteen months after the
     effective date of the Registration Statement (as defined in Rule 158(c)
     under the Act), an earnings statement of the Company (which need not be
     audited) complying with Section 11(a) of the Act and the rules and
     regulations of the Commission thereunder (including, at the option of the
     Company, Rule 158);

          (v) During the period beginning from the date hereof and continuing to
     and including the date 90 days after the date of the Prospectus (the
     "Company's Lock-up Period"), not to offer, sell, contract to sell, hedge or
     otherwise dispose of, except as provided hereunder and under the Other
     Underwriting Agreements, any Common Shares or ADSs or securities of the
     Company that are substantially similar to the Common Shares or ADSs,
     including, but not limited to, any securities that are convertible into or
     exchangeable or exercisable for, or that represent the right to receive,
     Common Shares or ADSs or any such substantially similar securities (other
     than pursuant to (A) employee benefits plan or distribution of dividends or
     employee bonuses in the form of shares of the Company existing on, or upon
     the conversion or exchange of convertible or exchangeable securities
     outstanding as of, the date of this Agreement and in each case which have
     been set forth in the Prospectus; (B) employee share purchase plans
     relating to the Privatization of the Company as set forth in the Prospectus
     under the caption "Business -- Employees" existing on, or upon the
     conversion or exchange of convertible or exchangeable securities
     outstanding as of, the date of this Agreement; (C) a sale to an entity
     which, in the sole judgment of the Joint Bookrunners, (y) is a
     non-financial institution and (z) has as its principal line of business the
     provision of [fixed-line] / [wireless] / [Internet] telecommunications
     services [in the ROC], on the condition that such entity shall provide a
     lock-up undertaking on substantially the same terms as set forth in this
     subsection (v) for the unexpired portion of the Company's Lock-Up Period;
     (D) a sale of the Common Shares to the Company arising out of a share
     repurchase conducted by the Company pursuant to ROC laws and regulations
     and as set forth in the Prospectus; or (E) an auction of the Common Shares
     conducted by the Selling Shareholder concurrently with the offering of the
     ADSs contemplated herein and as set forth in the Prospectus), without the
     prior written consent of the Joint Bookrunners, provided, however, that the
     Company may publicly disclose its intention to dispose of additional Common
     Shares in connection with the Privatization of the Company; for the
     purposes of this Agreement and the Other Underwriting Agreements, the term
     "Privatization" shall mean the process through which the government of the
     ROC, through the Selling Shareholder or otherwise, reduces its ownership of
     the Common Shares, including Common Shares owned by entities more than 50%
     owned by the government of the ROC, to less than 50% of the Common Shares
     issued and outstanding, resulting in the Company becoming a non-state owned
     entity);

                                       18







          (vi) For so long as the Company prepares the financial statements
     contained in the Company's annual report on Form 20-F in conformity with
     and under US GAAP, (A) to furnish to its shareholders (including holders of
     ADSs) as soon as practicable after the end of each fiscal year an annual
     report (in English) (in the same form and with the same content as the
     Annual ROC Financials (as defined below)), including a balance sheet and
     statements of income, stockholders' equity and cash flows of the Company
     and its consolidated subsidiaries, if any, and business segment information
     in accordance with Statement of Financial Accounting Standards No. 131,
     certified by independent public accountants and prepared in conformity with
     and under US GAAP; (B) to release to the public outside of the ROC, at the
     same time the Company releases financial information for each fiscal year
     to the public in the ROC and/or files such financial information with the
     Taiwan Stock Exchange or the ROC Securities and Futures Commission (the
     "Annual ROC Financials"), financial information for such fiscal year in the
     same form and with the same content as the Annual ROC Financials and
     prepared in conformity with and under US GAAP; (C) to make available to its
     shareholders (including holders of ADSs) after the end of each of the first
     three quarters of each fiscal year (beginning with the fiscal quarter
     ending after the effective date of the Registration Statement), financial
     information for such quarter in the same form and with the same content as
     the Quarterly ROC Financials (as defined below) prepared in conformity with
     and under US GAAP; and (D) to release to the public outside of the ROC, at
     the same time the Company releases financial information for each quarter
     to the public in the ROC and/or files such financial information with the
     Taiwan Stock Exchange or the ROC Securities and Futures Commission (the
     "Quarterly ROC Financials"), financial information for such quarter in the
     same form and with the same content as the Quarterly ROC Financials and
     prepared in conformity with and under US GAAP;

          (vii) During a period of three years from the effective date of the
     Registration Statement, to furnish to you copies of all reports or other
     communications (financial or other) furnished to shareholders, and to
     deliver to you (i) as soon as they are available, copies of any reports and
     financial statements furnished to or filed with the Commission, the ROC
     Securities and Futures Commission, the Taiwan Stock Exchange or any other
     securities exchange on which any class of securities of the Company is
     listed; and (ii) such additional information concerning the business and
     financial condition of the Company as you may from time to time reasonably
     request (such financial statements included in such additional information
     to be on a consolidated basis to the extent the accounts of the Company and
     its subsidiaries, if any, are consolidated in reports furnished to its
     shareholders generally or to the Commission);

          (viii) Not to (and to cause the Subsidiary not to) take, directly or
     indirectly, any action which is designed to or which constitutes or which
     might reasonably be expected to cause or result in stabilization or
     manipulation of the price of any security of the Company or facilitate the
     sale or resale of the Shares and the ADSs;

          (ix) To use its best efforts to list, subject to notice of issuance,
     the Shares and the ADSs on the New York Stock Exchange, Inc. (the "NYSE"),
     and to maintain such listing;

          (x) To file with the Commission such information on Form 20-F as may
     be required by Rule 463 under the Act;

                                       19

     (xi) If the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act; and

     (xii) Upon request of any Underwriter, to furnish, or cause to be
furnished, to such Underwriter an electronic version of the Company's
trademarks, servicemarks and corporate logo for use on the website, if any,
operated by such Underwriter for the purpose of facilitating the on-line
offering of the ADSs (the "License"); provided, however, that the License is
granted without any fee.

     (b) The Selling Shareholder agrees with each of the Underwriters:

     (i) (A) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus (the "Selling
Shareholder's First Lock-up Period"), not to offer, sell, contract to sell,
hedge or otherwise dispose of, except as provided hereunder and under the Other
Underwriting Agreements, any Common Shares or ADSs or securities of the Company
that are substantially similar to the Common Shares or ADSs, including, but not
limited to, any securities that are convertible into or exchangeable or
exercisable for, or that represent the right to receive, Common Shares or ADSs
or any such substantially similar securities (other than pursuant to (1) a sale
to an entity which, in the sole judgment of the Joint Bookrunners, (y) is a
non-financial institution and (z) has as its principal line of business the
provision of [fixed-line]/[wireless]/[Internet] telecommunications services
[in the ROC], on the condition that such entity shall provide a lock-up
undertaking on substantially the same terms as set forth in this subsection (A)
for the unexpired portion of the Selling Shareholder's First Lock-Up Period; (2)
a sale of the Common Shares to the Company arising out of a share repurchase
conducted by the Company pursuant to ROC laws and regulations and as set forth
in the Prospectus; or (3) an auction of the Common Shares conducted by the
Selling Shareholder concurrently with the offering of the ADSs contemplated
herein and as set forth in the prospectus), without the prior written consent of
the Joint Bookrunners, provided, however, that the Selling Shareholder may
publicly disclose its intention to dispose of additional Common Shares in
connection with the Privatization of the Company; and (B) during the period
beginning from the date of the completion of the Privatization of the Company
and continuing to and including the date 180 days after the date of the
completion of the Privatization of the Company (the "Selling Shareholder's
Second Lock-Up Period"), not to offer, sell, contract to sell, hedge or
otherwise dispose of, except as provided hereunder and under the Other
Underwriting Agreements, any Common Shares or ADSs or securities of the Company
that are substantially similar to the Common Shares or ADSs, including, but not
limited to, any securities that are convertible into or exchangeable or
exercisable for, or that represent the right to receive, Common Shares or ADSs
or any such substantially similar securities (other than pursuant to (1) a sale
to an entity which, in the sole judgment of the Joint Bookrunners, (y) is a
non-financial institution and (z) has as its principal line of business the
provision of [fixed-line]/[wireless]/[Internet] telecommunications services
[in the ROC], on the condition that such entity shall provide a lock-up
undertaking on substantially the same terms as set forth in this subsection (B)

                                       20

     for the unexpired portion of the Selling Shareholder's Second Lock-Up
     Period; or (2) a sale of the Common Shares to the Company arising out of a
     share repurchase conducted by the Company pursuant to ROC laws and
     regulations and as set forth in the prospectus) without the prior written
     consent of the Joint Bookrunners, provided, however, that the Selling
     Shareholder's Second Lock-Up Period shall in no event extend beyond
     December 31, 2004.

          (ii) Prior to each Time of Delivery, to deposit, or cause to be
     deposited on its behalf, the Shares with the Depositary in accordance with
     the provisions of the Deposit Agreement and otherwise to comply with the
     Deposit Agreement so that ADRs evidencing ADSs will be executed (and, if
     applicable, countersigned) and issued by the Depositary against receipt of
     such Shares and delivered to the Underwriters at such Time of Delivery;

          (iii) Not to (and to cause its affiliates not to) take, directly or
     indirectly, any action which is designed to or which constitutes or which
     might reasonably be expected to cause or result in stabilization or
     manipulation of the price of any security of the Company or facilitate the
     sale or resale of the Shares or the ADSs; and

          (iv) To appoint and maintain to the Company's board of directors at
     least two directors who do not have current or previous affiliation with
     either the Selling Shareholder or the Company, and not to remove or
     replace, except for cause, such directors during their terms of office.

     6. (a) The Company and the Selling Shareholder, jointly and severally,
covenant and agree with one another and with the several Underwriters that the
Company and the Selling Shareholder will pay or cause to be paid their
respective portions, totalling 100% of the following: [(i) the fees,
disbursements and expenses of the Company's and the Selling Shareholder's
counsel and accountants in connection with the registration of the Shares and
ADSs under the Act and all other expenses in connection with the preparation and
filing of the Registration Statement, the ADS Registration Statement and the
Form 8-A Registration Statement and amendments and supplements thereto; (ii) all
expenses in connection with the qualification of the Shares and ADSs for
offering and sale under state securities laws, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky surveys; (iii) all fees and
expenses in connection with the listing of the Shares and ADSs on the NYSE; and
(iv) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares and ADSs; (v) all expenses and taxes arising as a result of the deposit
by the Selling Shareholder of the Shares with the Depositary and the issuance
and delivery of the ADRs evidencing ADSs in exchange therefor by the Depositary
to the Selling Shareholder, of the sale and delivery of the ADS by the Selling
Shareholder to or for the account Underwriters, of the sale and delivery outside
of the ROC of the ADSs by the Underwriters to the initial purchasers thereof in
the manner contemplated under this Agreement, including, in any such case, any
ROC income, capital gains, withholding, transfer, stamp duty or other tax
asserted against an Underwriter or an Other Underwriter by reason of the
purchase and sale of an ADS pursuant to this Agreement or the Other Underwriting
Agreements or the Agreement among Syndicates (including income taxes as may be
imposed by any Governmental Agency on payments hereunder to any Underwriter
whose net income is subject to tax by the ROC or withholding, if any with
respect to

                                       21

any such income tax); (vi) the fees and expenses (including fees and
disbursements of counsel), if any, of the Depositary and any custodian appointed
under the Deposit Agreement, other than the fees and expenses to be paid by
holders of ADRs (other than the Underwriters or the Other Underwriters, in
connection with the initial purchase of ADSs); (vii) the fees and expenses of
the Authorized Agent (as defined in Section 15 hereof); (viii) the cost of
preparing ADRs; (ix) the cost and charges of any transfer agent or registrar;
(x) stock transfer taxes on resale of any of the ADSs by them; [(xi) all fees
and expenses in connection with the Japanese POWL;] and (xii) all other costs
and expenses to be agreed by the Company and the Selling Shareholder incident to
the performance of the obligations of the Company and the Selling Shareholder
hereunder which are not otherwise specifically provided for in this Section. (b)
It is understood, however, that except as provided in this Section, and Sections
8 and 12 hereof, the Underwriters will pay (i) the fees and disbursements of
their counsel; (ii) all expenses in connection with the printing of any
Preliminary Prospectus and the Prospectus and supplements thereto; (iii)
pre-marketing and roadshow expenses, including travel, lodging, conference
calls, car fare and other related expenses, (iv) promotional expenses, including
tombstone advertising, public relations consultants and other related expenses;
and (v) miscellaneous out-of-pocket expenses incurred by the Underwriters,
including travel, lodging, car fare, word processing, research, telephone and
teleconference.]

     All payments to be made by the Company and the Selling Shareholder under
this Agreement and the Other Underwriting Agreements shall be paid free and
clear of and without deduction or withholding for or on account of, any present
or future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature, imposed by any Governmental Agency, and all interests,
penalties or similar liabilities with respect thereto (collectively "Taxes"). If
any Taxes are required by law to be deducted or withheld in connection with such
payments, the Company and the Selling Shareholder will increase the amount paid
so that the full amount of such payment as agreed herein is received by the
Underwriters and the Other Underwriters.

     7. The obligations of the Underwriters hereunder shall be subject, in their
discretion, to the condition that all representations and warranties and other
statements of the Company and of the Selling Shareholder herein are, at and as
of such Time of Delivery, true and correct, the condition that the Company and
the Selling Shareholder shall have performed all of its and their obligations
hereunder theretofore to be performed, and the following additional conditions:

          (a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;

          (b) Sullivan & Cromwell LLP, United States counsel for the
Underwriters, shall have furnished to you such written opinion or opinions,
dated such Time of Delivery, with respect to the matters as you may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such

                                       22

matters;

          (c) Lee and Li, ROC counsel for the Underwriters, shall have furnished
to you such written opinion, dated such Time of Delivery, with respect to the
matters covered in paragraphs (i), (ii), (iii), (iv), (vi), (vii), (viii), (x),
(xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii), (xviii), (xix), (xx), (xxi),
(xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxix) and (xxxi) of subsection
(e) below as well as such other related matters as you may reasonably request,
and such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;

          (d) Simpson Thacher & Bartlett, United States counsel for the Company
and the Selling Shareholder, shall have furnished to you their written opinion,
dated such Time of Delivery in form and substance satisfactory to you, to the
effect that:

          (i) Each of this Agreement and the Other Underwriting Agreements has
     been duly executed and delivered by each of the Company and by the Selling
     Shareholder in accordance with the laws of the State of New York;

          (ii) The Deposit Agreement has been duly executed and delivered by the
     Company in accordance with the laws of the State of New York and, assuming
     that the Deposit Agreement has been duly authorized, executed and delivered
     by the Depositary, constitutes a valid and legally binding agreement of the
     Company enforceable against the Company in accordance with its terms,
     subject to (A) the effects of bankruptcy, insolvency, fraudulent
     conveyance, reorganization, moratorium and other similar laws relating to
     or affecting creditors' rights generally, (B) general equitable principles
     (whether considered in a proceeding in equity or at law), (C) an implied
     covenant of good faith and fair dealing and (D) the effects of the possible
     judicial application of foreign laws or foreign governmental or judicial
     action affecting creditors' rights;

          (iii) Assuming the due authorization, execution, issuance and delivery
     by the Depositary of ADRs evidencing the ADSs against the deposit of the
     Shares in accordance with the provisions of the Deposit Agreement and
     payment therefor in accordance with this Agreement, such ADRs will be duly
     and validly issued and persons in whose names such ADRs are registered will
     be entitled to the benefits specified therein and in the Deposit Agreement;

          (iv) The sale of the Shares and ADSs by the Selling Shareholder and
     the compliance by each of the Company and the Selling Shareholder with all
     of the provisions of this Agreement and the Deposit Agreement will not
     breach or result in a default under the agreements or instruments set forth
     in Schedule I thereto, nor will such action violate any U.S. federal or New
     York state statute or any rule or regulation that has been issued pursuant
     to any U.S. federal or New York state statute or any order known to such
     counsel issued pursuant to any U.S. federal or New York state statute by
     any court or governmental agency or body or court having jurisdiction over
     the Company or the Selling Shareholder or any of their respective
     properties;

          (v) No consent, approval, authorization, order, registration or
     qualification of or with any U.S. federal or New York governmental agency
     or body or, to such counsel's knowledge, any U.S. federal or New York state
     court is required for the sale of the

                                       23

     Shares and ADSs by the Selling Shareholder and the compliance by the
     Company and the Selling Shareholder with all of the provisions of this
     Agreement or the Deposit Agreement, except for the registration under the
     Act of the Shares and the ADSs, and such consents, approvals,
     authorizations, registrations or qualifications as may be required under
     state securities or Blue Sky laws in connection with the purchase and
     distribution of the Shares and the ADSs by the Underwriters;

          (vi) The ADSs have been approved for listing on the NYSE, subject to
     notice of issuance.

          (vii) The statements made in the Prospectus under the captions
     "Description of American Depositary Shares", "Shares Eligible for Future
     Sale" and "Underwriting", insofar as they purport to constitute summaries
     of the terms of New York state or U.S. federal statutes, rules and
     regulations thereunder or contracts and other documents, constitute
     accurate summaries of the terms of such statutes, rules and regulations or
     contracts and other documents in all material respects;

          (viii) The statements made in the Prospectus under the caption
     "Taxation - U.S. Federal Income Tax Considerations for U.S. Persons,"
     insofar as they purport to constitute summaries of matters of U.S. federal
     tax law and regulations or legal conclusions with respect thereto,
     constitute accurate summaries of matters described therein in all material
     respects;

          (ix) Under the laws of the State of New York relating to submission to
     jurisdiction, assuming validity and irrevocability in each case under the
     laws of the ROC, the Company and the Selling Shareholder have, pursuant to
     Section 15 of this Agreement and Section - of the Deposit Agreement, (A)
     validly submitted to the jurisdiction of any state or federal court located
     in the Borough of Manhattan, The City of New York (each a "New York
     Court"), (B) validly waived, to the fullest extent each may effectively do
     so, any objection each may now or hereafter have to the laying of venue in
     the jurisdiction of a New York Court, and (C) validly appointed CT
     Corporation System, 111 Eighth Avenue, New York, New York as its authorized
     agent for the purpose described in Section 15 of this Agreement and Section
     - of the Deposit Agreement, and service of process effected in the manner
     set forth in Section 15 of this Agreement and Section - of the Deposit
     Agreement will be effective to confer valid personal jurisdiction over the
     Company and the Selling Shareholder; and the waiver by the Company and the
     Selling Shareholder pursuant to this Agreement and the Deposit Agreement of
     any immunity to jurisdiction to which it may otherwise be entitled
     (including sovereign immunity and immunity from prejudgment attachment,
     post-judgment attachment and execution) is legal, valid and binding under
     New York and U.S. federal law, subject to the limitations imposed by the
     United States Foreign Sovereign Immunities Acts of 1976;

          (x) The Company is not an "investment company" or a company
     "controlled" by an "investment company" within the meaning of and subject
     to regulation under the Investment Company Act;

          (xi) The Registration Statement has become effective under the Act and
     the Prospectus was filed on -, 2003 pursuant to Rule 424(b) of the rules
     and regulations of the Commission under the Act; and, to our knowledge, no
     stop order suspending the

                                       24

     effectiveness of the Registration Statement has been issued or proceeding
     for that purpose has been instituted or threatened by the Commission;

          (xii) (A) The Registration Statement, the ADS Registration Statement
     and the Form 8-A Registration Statement, as of their respective effective
     dates, and the Prospectus, as of -, 2003, complied as to form in all
     material respects with the requirements of the Act or the Exchange Act, as
     applicable, and the applicable rules and regulations of the Commission
     thereunder, except that in each case such counsel expresses no opinion with
     respect to the financial statements or other financial data contained in
     the Registration Statement, the ADS Registration Statement or the
     Prospectus, and (B) such counsel has no reason to believe that the
     Registration Statement, the ADS Registration Statement and the Form 8-A
     Registration Statement, as of their respective effective dates, contained
     any untrue statement of a material fact or omitted to state any material
     fact required to be stated therein or necessary in order to make the
     statements therein not misleading or that the Prospectus contained as of -,
     2003 or contains as of the date such Time of Delivery any untrue statement
     of a material fact or omits to state any material fact necessary in order
     to make the statements therein, in the light of the circumstance under
     which they were made, not misleading, except that in each case such counsel
     expresses no belief with respect to the financial statements or other
     financial data contained in the Registration Statement, the ADS
     Registration Statement or the Prospectus;

          (xiii) To such counsel's knowledge, there are no pending legal or
     governmental proceedings against the Company required to be set forth in
     the Prospectus which are not set forth as required, or any contracts or
     documents of a character required to be set forth in the Registration
     Statement or Prospectus or to be filed as exhibits to the Registration
     Statement which are not set forth and filed as required; and to such
     counsel's knowledge, no legal or governmental proceedings against the
     Company required to be set forth in the Prospectus which are not set forth
     as required have been threatened or asserted by governmental authorities or
     by others;

          (xiv) Upon payment of the purchase price for the ADSs to the Selling
     Shareholder by the Underwriters and the delivery by the Selling Shareholder
     to DTC or its agent of the ADSs registered in the name of Cede & Co. or
     such other nominee designated by DTC, both as provided for herein, and the
     crediting of the ADSs to the Underwriters' accounts with DTC, Cede & Co. or
     such other nominee designated by DTC will be a "protected purchaser" of the
     ADSs (as defined in Section 8-303 of the Code), the Underwriters will
     acquire a valid "security entitlement" (within the meaning of Section 8-501
     of the Code) to the ADSs, and no action based on an "adverse claim" (as
     defined in Section 8-102 of the Code) may be asserted against the
     Underwriters with respect to such security entitlement (assuming that the
     Underwriters are without notice of any such adverse claim); and

          (xv) Under the laws of the United States and the State of New York,
     neither the Company nor the Selling Shareholder is entitled to any immunity
     on the basis of sovereignty or otherwise in respect of its obligations
     under this Agreement, the Other Underwriting Agreements or the Deposit
     Agreement and could not successfully interpose any such immunity as a
     defense to any suit or action brought or maintained in respect of its
     obligations under this Agreement, the Other Underwriting Agreements or

                                       25

     the Deposit Agreement; and, assuming that the waiver by the Company or the
     Selling Shareholder of immunity to jurisdiction (including the waiver of
     sovereign immunity to which the Company or the Selling Shareholder, as
     applicable, may become entitled subsequent to the date of this Agreement,
     the Other Underwriting Agreements or the Deposit Agreement) and immunity to
     pre-judgment attachment, post-judgment attachment and execution in any
     suit, action or proceeding against it arising out of or based on this
     Agreement, the Other Underwriting Agreements or the Deposit Agreement is a
     valid and binding obligation of the Company or the Selling Shareholder, as
     applicable, under the laws of the ROC, the waiver by the Company or the
     Selling Shareholder of immunity to jurisdiction (including the waiver of
     sovereign immunity to which the Company or the Selling Shareholder may
     become entitled subsequent to the date of this Agreement, the Other
     Underwriting Agreements or the Deposit Agreement) and immunity to
     pre-judgment attachment, post-judgment attachment and execution in any
     suit, action or proceeding against it arising out of or based on this
     Agreement, the Other Underwriting Agreements or the Deposit Agreement is a
     valid and binding obligation of the Company or the Selling Shareholder, as
     applicable, under New York law.

     In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States;

          (e) Baker & McKenzie, ROC counsel for the Company and the Selling
Shareholder shall have furnished to you their written opinion, dated such Time
of Delivery, in form and substance satisfactory to you, to the effect that:

          (i) The Company has been duly incorporated and is validly existing as
     a corporation limited by shares organized under the laws of the ROC with
     power and authority (corporate and other) to own, use, lease and operate
     its properties and conduct its business in the manner presently conducted
     and as set forth in the Prospectus and to perform its obligations under
     this Agreement and the Deposit Agreement; the Articles of Incorporation,
     the business license and other constituent documents of the Company comply
     with the requirements of applicable laws, statute and regulations of the
     ROC and are in full force and effect;

          (ii) The Company has an authorized and paid-in capitalization as set
     forth in the Prospectus, and all of the issued shares of capital stock of
     the Company (including the Shares being delivered at such Time of Delivery)
     have been duly and validly authorized and issued and are fully paid and
     non-assessable and conform to the description of the Common Shares
     contained in the Prospectus; all of the Common Shares (including the
     Shares) have been duly listed and admitted for trading on the Taiwan Stock
     Exchange; the holders of outstanding shares of capital stock of the Company
     are not entitled to preemptive or other rights to acquire the Shares or the
     ADSs in their capacity as shareholders; there are no outstanding securities
     convertible into or exchangeable for, or warrants, rights or options to
     purchase from the Company, or obligations of the Company to issue the
     Common Shares; the Shares to be deposited by the Selling Shareholder may be
     freely deposited by the Selling Shareholder with the Depositary against
     issuance of ADRs evidencing ADSs; the ADSs and the Shares are freely
     transferable by the Selling Shareholder to or for the account of the
     several Underwriters in the manner contemplated herein and in the Other
     Underwriting

                                       26

     Agreements and the initial purchasers thereof;

          (iii) All Governmental Authorizations of any Governmental Agency
     required for (A) the deposit of Shares and the issuance of ADSs in respect
     thereof, (B) the authorization, execution, delivery and performance by the
     Company of this Agreement, the Other Underwriting Agreements and the
     Deposit Agreement to be duly and validly authorized, (C) the authorization,
     execution, delivery and performance by the Selling Shareholder of this
     Agreement and the Other Underwriting Agreements to be duly and validly
     authorized and (D) the consummation of the transactions contemplated by
     this Agreement, the Other Underwriting Agreements and the Deposit Agreement
     have been obtained or made and are in full force and effect and no such
     Governmental Authorization has been withdrawn or is subject to any
     condition precedent which has not been fulfilled or performed, except for
     (A) such filings, if any, required by the ROC "Rules for Handling Issuance
     and Offer of Overseas Securities by Issuers", (B) the approval of the ROC
     Central Bank of China for foreign exchange settlements and payments
     contemplated by the Deposit Agreement, (C) the approval of the Ministry of
     Economic Affairs of the ROC for the Company's corporate amendment
     registration with respect to the Shares, (D) the application to the Taiwan
     Stock Exchange for listing of the Shares on the Taiwan Stock Exchange, and
     (E) reports to the ROC Central Bank of China regarding (1) conversion from
     New Taiwan dollars into United States dollars for payment of any dividends
     or other amounts contemplated by the Deposit Agreement, and (2) the names
     and telephone numbers of local agents in the ROC appointed by the holders
     of the ADSs upon their withdrawal of the Shares represented by the ADSs
     from the Company's American Depositary Shares facility;

          (iv) The Deposit Agreement has been duly authorized, executed and
     delivered by the Company and constitutes a valid and legally binding
     agreement of the Company, enforceable in accordance with its terms,
     subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
     moratorium, reorganization and similar laws of general applicability
     relating to or affecting creditors' rights and to general equity
     principles;

          (v) The Company has good and marketable title to all real property
     owned by it, in each case free and clear of all liens, encumbrances,
     charges, claims, third party rights or interests, defects and any other
     restrictions except such as are set forth in the Prospectus or such as do
     not materially affect the value of such property and do not interfere with
     the use made and proposed to be made of such property by the Company; and
     any real property and buildings held under lease by the Company are held by
     it under valid, subsisting and enforceable leases with such exceptions as
     are not material and do not interfere with the use made and proposed to be
     made of such property and buildings by the Company;

          (vi) To the best of such counsel's knowledge and other than as set
     forth in the Prospectus, there are no legal or governmental proceedings
     pending to which the Company is a party or of which any property of the
     Company is the subject which, if determined adversely to the Company, would
     individually or in the aggregate have a material adverse effect on the
     current or future financial position, shareholders' equity or results of
     operations of the Company, and, to the best of such counsel's knowledge, no
     such proceedings are threatened or contemplated by any Governmental Agency
     or

                                       27

     threatened by others;

          (vii) This Agreement and the Other Underwriting Agreements have been
     duly authorized, executed and delivered by each of the Company and the
     Selling Shareholder, and constitutes a valid and legally binding agreement
     of each of the Company and the Selling Shareholder under laws and
     regulations of the ROC, enforceable in accordance with its terms, subject
     to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
     and similar laws of general applicability relating to or affecting
     creditors' rights and to general equity principles;

          (viii) The deposit of the Shares being deposited with the Depositary
     against issuance of the ADRs evidencing the ADSs, the compliance by each of
     the Company and the Selling Shareholder with all of the provisions of this
     Agreement, the Other Underwriting Agreements and the Deposit Agreement and
     the consummation of the transactions herein and therein contemplated will
     not conflict with or result in a breach or violation of any of the terms or
     provisions of, or constitute a default under, any indenture, mortgage, deed
     of trust, loan agreement or other agreement or instrument known to such
     counsel to which the Company or the Selling Shareholder are a party or by
     which the Company or the Selling Shareholder are bound or to which any of
     the property or assets of the Company is subject, nor will such action
     result in any violation of the provisions of the Articles of Incorporation,
     business licenses or other constituent documents of the Company or the
     Selling Shareholder or any law or statute or any order, rule or regulation
     known to such counsel of any Governmental Agency having jurisdiction over
     the Company or the Selling Shareholder or any of their respective
     properties, including the Telecommunication Acts of the ROC, the Statute of
     Chunghwa Telecom Co., Ltd., the Statute Governing Privatization of State
     Owned Enterprises, the Law Governing Administration of State Owned
     Enterprises, the Audit Law of the ROC and the Budget Law of the ROC;

          (ix) The Selling Shareholder has, and immediately prior to each Time
     of Delivery the Selling Shareholder will have, good and valid title to the
     Shares and ADSs to be sold by the Selling Shareholder hereunder and under
     the Other Underwriting Agreements, free and clear of all liens,
     encumbrances, equities or claims; and, upon delivery of such Shares and
     ADSs and payment therefor pursuant hereto and thereto, good and valid title
     to such Shares and ADSs, free and clear of all liens, encumbrances,
     equities or claims, will pass to the several Underwriters and the Other
     Underwriters, as the case may be;

          (x) The statements in the Prospectus under the caption "Prospectus
     Summary", "Risk Factors", "Use of Proceeds, "Dividend Policy",
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations", "Business", "Management", "The Taiwan Telecommunications
     Industry", "Regulation", "Relationship with the Government of the Republic
     of China", "Shares Eligible for Future Sale", "Related Party Transactions"
     and "Enforceability of Civil Liabilities", and in "The Securities Markets
     of Taiwan" and "Foreign Investment and Exchange Controls in Taiwan", to the
     extent such statements relate to matters of law or regulation of the ROC,
     are true and accurate in all material respects, and nothing has been
     omitted from such statements which would make the same misleading in any
     material respect;

                                       28

          (xi) The opinions of such counsel set forth in the Prospectus under
     "Validity of Securities" are confirmed as of such Time of Delivery;

          (xii) Other than as set forth in the Prospectus, so long as this
     Agreement, the Other Underwriting Agreement or any documents which are
     deemed "receipts" under ROC Stamp Tax Law are executed outside the ROC, no
     stamp or other issuance or transfer taxes or duties and no capital gains,
     income, withholding or other taxes are payable by or on behalf of the
     Underwriters or the Other Underwriters to the government of the ROC or to
     any political subdivision or taxing authority thereof or therein in
     connection with (A) the deposit with the Depositary of Shares by the
     Selling Shareholder against the issuance of ADRs evidencing ADSs, (B) the
     sale and delivery by the Selling Shareholder of the ADSs representing the
     Shares to or for the respective accounts of the Underwriters, (C) the sale
     and delivery outside the ROC by the Underwriters of the ADSs representing
     the Shares to the initial purchasers thereof or (D) the execution, delivery
     and performance of, or the consummation of any other transaction
     contemplated under, this Agreement, the Other Underwriting Agreements and
     the Deposit Agreement (other than any income tax that may be levied on the
     income of the Underwriters or the Other Underwriters whose income may
     otherwise be subject to ROC tax or withholding, if any, with respect to
     such income tax);

          (xiii) Insofar as matters of ROC law are concerned, the Registration
     Statement, the Prospectus, the ADS Registration Statement, the Form 8-A
     Registration Statement, the Japanese Registration Statement and the
     Japanese Prospectus and the filing of the Registration Statement, the
     Prospectus and the ADS Registration Statement with the Commission and the
     filing of the Japanese Registration Statement and the Japanese Prospectus
     with the KLFB have been duly authorized by and on behalf of the Company;
     and the Registration Statement, the ADS Registration Statement, the Form
     8-A Registration Statement and the Japanese Registration Statement have
     been duly executed pursuant to such authorization by and on behalf of the
     Company;

          (xiv) The agreement of each of the Company and the Selling Shareholder
     to the choice of law provisions set forth in Section 15 hereof and in
     Section - of the Deposit Agreement will be recognized by the courts of the
     ROC; each of the Company and the Selling Shareholder can sue and be sued in
     its own name under the laws of the ROC; the irrevocable submission of each
     of the Company and the Selling Shareholder to the exclusive jurisdiction of
     a New York Court, the waiver by each of the Company and the Selling
     Shareholder of any objection to the venue of a proceeding of a New York
     Court and the agreement of each of the Company and the Selling Shareholder
     that this Agreement and the Deposit Agreement shall be governed by and
     construed in accordance with the laws of the State of New York are legal,
     valid and binding; service of process effected in the manner set forth in
     Section 15 hereof and in Section - of the Deposit Agreement will be
     effective, insofar as the law of the ROC is concerned, to confer valid
     personal jurisdiction over each of the Company and the Selling Shareholder;
     and judgment obtained in a New York Court arising out of or in relation to
     the obligations of each of the Company and the Selling Shareholder under
     this Agreement, the Other Underwriting Agreements and the Deposit Agreement
     would be enforceable against the Company in the courts of the ROC;

          (xv) The indemnification and contribution provisions set forth in
     Section 8

                                       29

     hereof and in Section - of the Deposit Agreement do not contravene the
     public policy or laws of the ROC, and insofar as matters of ROC law are
     concerned, constitute the legal, valid and binding obligations of each of
     the Company and the Selling Shareholder, enforceable in accordance with the
     terms therein, subject, as to enforcement, to bankruptcy, insolvency,
     fraudulent transfer, moratorium, reorganization and other laws of general
     applicability relating to or affecting creditors' rights;

          (xvi) Other than as set forth in the Prospectus, all dividends and
     other distributions declared and payable in respect of the capital stock of
     the Company may under the current laws and regulations of the ROC be paid
     in New Taiwan dollars (including any such dividends or distributions to be
     paid to the Depositary), that may be converted into foreign currency that
     may be freely transferred out of the ROC, and all such dividends and other
     distributions will not be subject to withholding or other taxes under the
     laws and regulations of the ROC and are otherwise free and clear of any
     other tax, withholding or deduction in the ROC and without the necessity of
     obtaining any Governmental Authorization in the ROC;

          (xvii) Neither the Company nor the Selling Shareholder is (A) in
     violation of its constituent documents, (B) in default, or with the giving
     of notice or lapse of time or both would be in default, in the performance
     or observance of any material obligation, agreement, covenant or condition
     contained in any license, indenture, mortgage, deed of trust, loan
     agreement, lease or other agreement or instrument to which it is a party or
     by which it or any of its properties may be bound, except such defaults
     which individually or in the aggregate would not have a Material Adverse
     Effect, or (C) in violation or contravention of any law or statute or any
     order, rule or regulation of any Governmental Agency having jurisdiction
     over the Company or any of its properties or the Selling Shareholder; and
     the payments by the Company to the ROC government in anticipation of
     dividends expected to be approved at subsequent annual shareholders
     meetings set forth in the Prospectus under the caption "Dividends",
     including the payment of NT$13.0 billion in January 2000 in anticipation of
     dividends in respect of the period beginning on July 1, 1999 and ending on
     December 31, 2000, were made in accordance with applicable law and
     regulations;

          (xviii) The statements set forth in the Prospectus under the caption
     "Description of Share Capital" and "Description of American Depositary
     Shares", insofar as they purport to constitute a summary of the terms of
     the Common Shares and ADSs, respectively, under the heading of "Legal
     Proceedings" under the caption "Business" and under the caption "Taxation
     -- Republic of China Taxation" and "Underwriting", insofar as they purport
     to describe the provisions of the laws of the ROC, are accurate, complete
     and fair;

          (xix) The ADSs delivered at each Time of Delivery by the Selling
     Shareholder will be freely transferable by the Selling Shareholder to or
     for the account of the several Underwriters and (to the extent set forth in
     the Prospectus) the initial purchasers thereof; and there are no
     restrictions on subsequent transfers of the Shares or ADSs under the laws
     of the ROC except as set forth in the Prospectus under the captions
     "Description of Share Capital", "Description of American Depositary
     Shares", and "Foreign Investment and Exchange Controls in Taiwan";

                                       30

          (xx) Although they do not assume any responsibility for the accuracy,
     completeness or fairness of the statements contained in the Registration
     Statement or the Prospectus, except for those referred to in the opinion in
     subsections (x) and (xviii) of this Section 7(d), they have no reason to
     believe that, as of its effective date, the Registration Statement or any
     further amendment thereto made by the Company prior to such Time of
     Delivery (other than the financial statements and related schedules
     therein, as to which such counsel need express no opinion) contained an
     untrue statement of a material fact or omitted to state a material fact
     required to be stated therein or necessary to make the statements therein
     not misleading or that, as of its date, the Prospectus or any further
     amendment or supplement thereto made by the Company prior to such Time of
     Delivery (other than the financial statements and related schedules
     therein, as to which such counsel need express no opinion) contained an
     untrue statement of a material fact or omitted to state a material fact
     necessary to make the statements therein, in the light of the circumstances
     under which they were made, not misleading or that, as of such Time of
     Delivery, either the Registration Statement or the Prospectus or any
     further amendment or supplement thereto made by the Company prior to such
     Time of Delivery (other than the financial statements and related schedules
     therein, as to which such counsel need express no opinion) contains an
     untrue statement of a material fact or omits to state a material fact
     necessary to make the statements therein, in the light of the circumstances
     under which they were made, not misleading;

          (xxi) The entering into, performance and enforcement of this Agreement
     and the Other Underwriting Agreements in accordance with its terms will not
     subject the Underwriters or the Other Underwriters to a requirement to be
     licensed or otherwise qualified to do business in the ROC, nor will any
     Underwriter or Other Underwriter be deemed to be resident, domiciled,
     carrying on business through an establishment or place in the ROC or in
     breach of any laws or regulations of the ROC by reason of entering into,
     performance or enforcement of this Agreement or the Other Underwriting
     Agreements;

          (xxii) The Company has all licenses, consents, franchises, permits,
     authorizations, approvals, certificates and orders and other concessions of
     and from, and has made all necessary declaration and filings with, all
     Governmental Agencies that are necessary to own, lease, license and use its
     properties and conduct its businesses in the manner as set forth in the
     Prospectus and such licenses, consents, franchises, permits,
     authorizations, approvals, certificates, orders or concessions contain no
     materially burdensome restrictions or conditions not set forth in the
     Registration Statement or the Prospectus; and such counsel has no reason to
     believe that the Ministry of Transportation and Communications, the
     Directorate General of Telecommunications or any other Governmental Agency
     is considering modifying, suspending or revoking any such licenses,
     consents, franchises, permits, authorizations, approvals, certificates,
     orders or concessions;

          (xxiii) Other than as set forth in the Prospectus, the Company has no
     obligation to provide retirement, death or disability benefits to any of
     the present or past employees of the Company or the Subsidiary, or to any
     other person that would, individually or in the aggregate, have a Material
     Adverse Effect;

          (xxiv) Each of this Agreement, the Other Underwriting Agreements and
     the

                                       31



     Deposit Agreement is in proper form to be enforceable against each of the
     Company and the Selling Shareholder in the ROC in accordance with its
     terms; to ensure the legality, validity, enforceability or admissibility
     into evidence in the ROC of each of this Agreement, the Other Underwriting
     Agreements and the Deposit Agreement, it is not necessary that this
     Agreement, the Other Underwriting Agreement or the Deposit Agreement be
     filed or recorded with any court or other authority in the ROC or that any
     stamp or similar tax in the ROC be paid on or in respect of this Agreement,
     the Other Underwriting Agreements, the Deposit Agreement or any other
     documents to be furnished hereunder, it being understood that in court
     proceedings in the ROC, a translation into the Chinese language may be
     required;

          (xxv) No holder of any of the Shares or the ADSs after the
     consummation of the transactions contemplated by this Agreement, the Other
     Underwriting Agreements or the Deposit Agreement is or will be subject to
     any liability in respect of any liability of the Company by virtue only of
     its holding of any such Shares or ADSs; except as set forth in the
     Prospectus, there are no limitations on the rights of holders of the Shares
     or the ADSs to hold, vote or transfer their securities;

          (xxvi) Under the laws of the ROC, each holder of ADRs evidencing ADSs
     issued pursuant to the Deposit Agreement shall be entitled, subject to the
     Deposit Agreement, to seek enforcement of its rights through the Depositary
     or its nominee registered as representative of the holders of the ADRs in a
     direct suit, action or proceeding against the Company;

          (xxvii) Except as set forth in the Prospectus or this Agreement, all
     amounts payable by the Company in respect of the ADRs evidencing the ADSs
     or the underlying Shares shall be made free and clear of and without
     deduction for or on account of any taxes imposed, assessed or levied by the
     ROC or any authority thereof or therein nor are any taxes imposed in the
     ROC on, or by virtue of the execution or delivery of, such documents; and

          (xxviii) To the best of such counsel's knowledge and other than as set
     forth in the Prospectus, there are no contracts, agreements or
     understandings between or among the Company and/or the Selling Shareholder
     on the hand, and any person on the other hand, that would give rise to a
     valid claim against the Company, the Selling Shareholder, any Underwriter
     or any Other Underwriter for a brokerage commission, finder's fee or other
     like payment;

          (xxix) Inasmuch as the Prospectus states that under the existing ROC
     laws and regulations relating to foreign exchange controls, the Company
     will be required to obtain foreign exchange control approval from the
     Central Bank of China for the conversion into foreign currencies and the
     remittance out of the ROC of dividends and certain other amounts, on a
     payment-by-payment basis, such counsel has no reason to believe that such
     exchange control approvals will not be routinely available on a timely
     basis to the Company;

          (xxx) The Company owns or has the legal right to use, or can acquire
     on reasonable terms, all patents, patent licenses, inventions, copyrights,
     trademarks, service marks, trade names, domain names and know-how
     (including trade secrets and

                                       32


     other unpatented and/or unpatentable proprietary or confidential
     information, systems or procedures), information, proprietary rights and
     processes necessary to conduct its business as currently conducted and as
     proposed to be conducted, and to the best knowledge of such counsel, the
     Company has not received any notice or claim of infringement of or conflict
     with asserted rights of others with respect to any of the foregoing which,
     individually or in the aggregate, if the subject of an unfavorable
     decision, ruling or finding, would result in any Material Adverse Effect;
     to the best knowledge of such counsel, the Company has not in conducting
     its business activities infringed any patent, copyright, title, trademark,
     service mark, trade name, domain name or other intellectual property rights
     already registered by a third party in the ROC or other jurisdiction; and

          (xxxi) Under the laws of the ROC, the Company is not entitled to any
     immunity on the basis of sovereignty or otherwise in respect of its
     obligations under this Agreement, the Other Underwriting Agreements or the
     Deposit Agreement and could not successfully interpose any such immunity as
     a defense to any suit or action brought or maintained in respect of its
     obligations under this Agreement, the Other Underwriting Agreements or the
     Deposit Agreement; and, assuming that the waiver by the Company of immunity
     to jurisdiction (including the waiver of sovereign immunity to which the
     Company may become entitled subsequent to the date of this Agreement, the
     Other Underwriting Agreements or the Deposit Agreement) and immunity to
     pre-judgment attachment, post-judgment attachment and execution in any
     suit, action or proceeding against it arising out of or based on this
     Agreement, the Other Underwriting Agreements or the Deposit Agreement is a
     valid and binding obligation of the Company under ROC law, the waiver by
     the Company of immunity to jurisdiction (including the waiver of sovereign
     immunity to which the Company may become entitled subsequent to the date of
     this Agreement, the Other Agreements or the Deposit Agreement) and immunity
     to pre-judgment attachment, post-judgment attachment and execution in any
     suit, action or proceeding against it arising out of or based on this
     Agreement, the Other Underwriting Agreements or the Deposit Agreement is a
     valid and binding obligation of the Company under ROC law.

     In giving such opinion, such counsel may state that with respect to all
matters of United States federal and New York law they have relied upon the
opinions of United States counsel for the Company delivered pursuant to
paragraph (d) of this Section 7;

          (f) Emmet, Marvin & Martin LLP, counsel for the Depositary shall have
furnished to you their written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:

          (i) The Deposit Agreement has been duly authorized, executed and
     delivered by the Depositary and, assuming due authorization, execution and
     delivery of the Deposit Agreement by the Company, constitutes a valid and
     legally binding obligation of the Depositary, enforceable in accordance
     with its terms, except as enforcement thereof may be limited by bankruptcy,
     insolvency, fraudulent transfer, reorganization moratorium or similar laws
     of general applicability relating to or affecting creditors' rights and to
     general principles of equity;

          (ii) Upon execution and delivery by the Depositary of ADRs evidencing
     ADSs

                                       33


     against the deposit of Shares in accordance with the provisions of the
     Deposit Agreement (assuming such Shares were, at the time of such deposit,
     (A) duly authorized and validly issued, fully paid and non-assessable and
     (B) registered in compliance with the Act), such ADRs will be duly and
     validly issued and will entitle the holder thereof to the rights specified
     therein and in the Deposit Agreement;

          (iii) The execution and delivery of the Deposit Agreement by the
     Depositary and the compliance by the Depositary with all the provisions
     thereof does not and will not result in the violation of any statute, rule
     or regulation applicable to the Depositary or the organizational
     certificate or bylaws of the Depositary;

          (iv) No approval, authorization or other action by, or filing with,
     any governmental authority or regulatory body is required for the due
     execution, delivery and performance by the Depositary of the Deposit
     Agreement; and

          (v) The ADS Registration Statement, as amended, has been declared
     effective under the Act and, to the best of such counsel's knowledge, no
     stop order suspending the effectiveness of the ADS Registration Statement
     or any part thereof has been issued and no proceedings for that purpose
     have been instituted or are pending or contemplated under the Act, and the
     ADS Registration Statement, and each amendment thereof, as of their
     respective dates, complied as to form in all material respects with the
     requirements of the Act and the rules and regulations thereunder;

          (g) On the date of the Preliminary Prospectus, on the date of the
Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New
York City time, on the effective date of any post-effective amendment to the
Registration Statement filed subsequent to the date of this Agreement and also
at each Time of Delivery, T.N. Soong & Co. shall have furnished to you a letter
or letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto (the
executed copy of the letters delivered prior to the execution of this Agreement
is attached as Annex I(a) hereto);

          (h) (i) The Company shall not have sustained since the date of the
latest audited financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood, earthquake or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus, there shall not have been any change in
the capital stock, short-term debt or long-term debt of the Company, otherwise
than as set forth or contemplated in the Prospectus, the effect of which, in any
such case described in this clause (i) or (ii), is in the judgment of the Joint
Bookrunners so material and adverse as to make it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares and ADSs on
the terms and in the manner contemplated in the Prospectus;

          (i) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;

                                       34


          (j) The ADSs to be sold by the Selling Shareholder at such Time of
Delivery shall have been duly listed, subject to notice of issuance, on the
NYSE;

          (k) The Depositary shall have furnished or caused to be furnished to
you at such Time of Delivery certificates satisfactory to you evidencing the
deposit with it of the Shares being so deposited against issuance of ADRs
evidencing the ADSs to be delivered by the Selling Shareholder at such Time of
Delivery, and the execution, countersignature (if applicable), issuance and
delivery of ADRs evidencing such ADSs pursuant to the Deposit Agreement;

          (l) The Company shall have complied with the provisions of Section
5(a)(iii) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement;

          (m) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request, and the
Company shall have furnished or caused to be furnished certificates as to the
matters set forth in subsections (a) and (h) of this Section, and as to such
other matters as you may reasonably request; and

          (n) The Selling Shareholder shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of an officer of the
Selling Shareholder satisfactory to you as to the accuracy of the
representations and warranties of the Selling Shareholder herein at and as of
such Time of Delivery, as to the performance by the Selling Shareholder of all
of its obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request.

     8. (a) The Company and the Selling Shareholder, jointly and severally, will
indemnify and hold harmless each Underwriter against any losses, claims,
damages, expenses or liabilities, joint or several, to which such Underwriter
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement, the
ADS Registration Statement, the Prospectus, the Form 8-A Registration Statement,
the Japanese Registration Statement or the Japanese Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company and the
Selling Shareholder shall not be liable in any such case to the extent that any
such loss, claim, damage, expenses or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement, the ADS
Registration Statement, the Prospectus, the Form 8-A Registration Statement, the
Japanese Registration Statement or the Japanese Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the

                                       35


Company by any Underwriter through the Joint Bookrunners expressly for use
therein.

          (b) Each Underwriter will indemnify and hold harmless the Company and
the Selling Shareholder against any losses, claims, damages, expenses or
liabilities to which the Company or the Selling Shareholder may become subject,
under the Act or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement, the ADS Registration
Statement, the Prospectus, the Form 8-A Registration Statement, the Japanese
Registration Statement or the Japanese Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement, the ADS Registration Statement, the
Prospectus, the Form 8-A Registration Statement, the Japanese Registration
Statement or the Japanese Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Joint Bookrunners expressly for use
therein; and will reimburse the Company and the Selling Shareholder for any
legal or other expenses reasonably incurred by the Company or the Selling
Shareholder in connection with investigating or defending any such action or
claim as such expenses are incurred.

          (c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (which shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.

          (d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to

                                       36


therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
expenses or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholder on the one hand (it being understood that for purposes of
this subsection (d), any benefit received by the Selling Shareholder shall also
be deemed to have been received by the Company) and the Underwriters on the
other from the offering of the ADSs. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the
Selling Shareholder on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Shareholder on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering of the ADSs purchased under this Agreement
(before deducting expenses) received by the Company and the Selling Shareholder
bear to the total underwriting discounts and commissions received by the
Underwriters with respect to the ADSs purchased under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Shareholder on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, the Selling
Shareholder and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, expenses or liabilities (or actions in respect thereof) referred to
above in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the ADSs underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.

          (e) The obligations of the Company and the Selling Shareholder under
this Section 8 shall be in addition to any liability which the Company and the
Selling Shareholder may otherwise have and shall extend, upon the same terms and
conditions, to the respective affiliates and selling agents of each Underwriter
and to each person, if any, who controls any Underwriter within the meaning of
the Act; and the obligations of the Underwriters under this Section 8 shall be
in addition to any liability which the respective Underwriters may otherwise

                                       37


have and shall extend, upon the same terms and conditions, to each officer and
director of the Company (including any person who, with his or her consent, is
named in the Registration Statement as about to become a director of the
Company) or the Selling Shareholder, as the case may be, and to each person, if
any, who controls the Company or the Selling Shareholder, as the case may be,
within the meaning of the Act.

     9. (a) If any Underwriter or any of the Other Underwriters, as applicable,
shall default in its obligation to purchase the American Depositary Shares which
it has agreed to purchase under this Agreement or the Other Underwriting
Agreements, as applicable, at a Time of Delivery, you may in your discretion
arrange for you or another party or other parties to purchase such American
Depositary Shares on the terms contained herein or therein, as applicable. If
within thirty-six hours after such default by any Underwriter or any of the
Other Underwriters, as applicable, you do not arrange for the purchase of such
American Depositary Shares, then the Company and the Selling Shareholder shall
be entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such American
Depositary Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company and the Selling Shareholder that you
have so arranged for the purchase of such American Depositary Shares, or the
Company and the Selling Shareholder notifies you that they have so arranged for
the purchase of such American Depositary Shares, you or the Company and the
Selling Shareholder shall have the right to postpone such Time of Delivery for a
period of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement, and the term "Other
Underwriter" as used in this Agreement shall include any person substituted
under the relevant section of the corresponding Other Underwriting Agreement
with like effect as if such person had originally been a party to such Other
Underwriting Agreement.

          (b) If, after giving effect to any arrangements for: (i) the purchase
of the ADSs of a defaulting Underwriter or Underwriters by you or the Company
and the Selling Shareholder as provided in subsection (a) above, and (ii) the
purchase of American Depositary Shares of a defaulting Other Underwriter or
Underwriters by you or the Company and the Selling Shareholder as provided in
the relevant section of the corresponding Other Underwriting Agreement, the
aggregate number of American Depositary Shares which remains unpurchased does
not exceed one-eleventh of the aggregate number of all of the American
Depositary Shares at such Time of Delivery, then the Selling Shareholder shall
have the right to require each non-defaulting Underwriter to purchase the number
of ADSs which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of ADSs which such Underwriter
agreed to purchase hereunder) of the ADSs of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.

          (c) If, after giving effect to any arrangements for: (i) the purchase
of the ADSs of a defaulting Underwriter or Underwriters by you or the Company
and the Selling Shareholder as provided in subsection (a) above, and (ii) the
purchase of American Depositary Shares of a

                                       38


defaulting Other Underwriter or Underwriters by you or the Company and the
Selling Shareholder as provided in the relevant section of the corresponding
Other Underwriting Agreement, the aggregate number of American Depositary Shares
which remains unpurchased exceeds one-eleventh of the aggregate number of all of
the American Depositary Shares at such Time of Delivery, or if the Company and
the Selling Shareholder shall not exercise the right described in subsection (b)
above to require non-defaulting Underwriters to purchase ADSs of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Selling Shareholder to sell the Optional ADSs) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
or the Selling Shareholder, except for the expenses to be borne by the Company
and the Selling Shareholder and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Sections 8 and 16 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.

     10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Selling Shareholder and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any officer or director or controlling person of
the Company, the Selling Shareholder, or any controlling person of the Selling
Shareholder, and shall survive delivery of and payment for the ADSs.

     11. This Agreement shall be subject to termination in the absolute
discretion of the Joint Bookrunners, by written notice given to the Company
prior to a Time of Delivery, if at any time prior to such Time of Delivery, any
of the following events shall have occurred: (a) a suspension or material
limitation in trading in securities generally by the Commission or the ROC
Securities and Futures Commission on the NYSE or Taiwan Stock Exchange, as
applicable, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of such exchanges or any
Governmental Agency; (b) a suspension or material limitation in trading in the
Company's securities on the NYSE or Taiwan Stock Exchange; (c) a general
moratorium on commercial banking activities in New York, London or the ROC
declared by the relevant authorities or a material disruption in commercial
banking or securities settlement or clearance services in the United States, the
United Kingdom or the ROC; (d) a change or development involving a prospective
change in the ROC taxation affecting the Company, the Shares or the ADSs or the
transfer thereof; (e) the outbreak or escalation of hostilities involving the
United States, North Korea or the ROC or the declaration by the United States,
North Korea or the ROC of a national emergency or war, if the effect of any such
event specified in this clause (e), in the judgment of the Joint Bookrunners,
makes it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares and ADSs being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus; (f) since the respective
dates as of which information is given in the Prospectus, any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of operations of
the Company, otherwise than as set forth in the Prospectus, if the effect of any
such event specified in this clause (f) in the judgment of the Joint Bookrunners
so material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares and ADSs being delivered
at such Time of Delivery on the terms and in the manner contemplated in the
Prospectus; or (g) the occurrence of any calamity or crises or any material
adverse change

                                       39


in the existing financial, political or economic conditions or currency exchange
rates or controls in the United States, the United Kingdom and the ROC or
elsewhere which, in the judgment of the Joint Bookrunners would materially and
adversely affect the financial markets or the market for the Shares and ADSs.

     12. If this Agreement shall be terminated pursuant to Sections 9 or 11
hereof, neither the Company nor the Selling Shareholder shall then be under any
liability to any Underwriter except as provided in Sections 6, 8 and 16 hereof;
but, if for any other reason any ADSs are not delivered by or on behalf of the
Selling Shareholder as provided herein, the Company and the Selling Shareholder
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the ADSs not so delivered, but the Company and the Selling
Shareholder shall then be under no further liability to any Underwriter in
respect of the ADSs not so delivered except as provided in Sections 6, 8 or 16
hereof.

     13. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you; and in all dealings with the Company or the Selling Shareholder
hereunder, as the case may be, you and the Company shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of the Company
or the Selling Shareholder, as the case may be.

     All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representative at [Insert Address, Fax
Number and Contact Department]; if to the Selling Shareholder shall be delivered
or sent by mail, telex or facsimile transmission to counsel for such Selling
Shareholder at [Insert Address, Fax Number and Contact Department]; and if to
the Company shall be delivered or sent by mail, telex or facsimile transmission
to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire or telex constituting such Questionnaire, which
address will be supplied to the Company or the Selling Shareholder by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.

     14. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Shareholder and, to the extent
provided in Sections 8 and 10 hereof, the officers and directors of the Company
and each person who controls the Company, any Selling Shareholder or any
Underwriter, including any affiliates and selling agents of an Underwriter, and
their respective heirs, executors, administrators, successors and assigns, and
no other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the ADSs from any Underwriter shall be deemed
a successor or assign by reason merely of such purchase.

     15. Each of the parties hereto irrevocably (a) agrees that any legal suit,
action or proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby may be instituted in any New York court, (b)
waives, to the fullest extent it may effectively do so, any objection which it
may now or hereafter have to the laying of venue of any

                                       40


such proceeding and (c) submits to the exclusive jurisdiction of such courts in
any such suit, action or proceeding. Each of the Company and the Selling
Shareholder irrevocably waives any immunity to jurisdiction to which it may
otherwise be entitled or become entitled (including sovereign immunity, immunity
to pre-judgment attachment, post-judgment attachment and execution) in any legal
suit, action or proceeding against it arising out of or based on this Agreement
or the transactions contemplated hereby which is instituted in any New York
Court or in any competent court in the ROC. Each of the Company and the Selling
Shareholder has appointed C.T. Corporation System, 111 Eighth Avenue, New York,
New York, as its authorized agent (the "Authorized Agent") upon whom process may
be served in any such action arising out of or based on this Agreement or the
transactions contemplated hereby which may be instituted in any New York Court
by any Underwriter or by any person who controls any Underwriter, expressly
consents to the jurisdiction of any such court in respect of any such action,
and waives any other requirements of or objections to personal jurisdiction with
respect thereto. Such appointment shall be irrevocable. Each of the Company and
the Selling Shareholder represents and warrants that the Authorized Agent has
agreed to act as such agent for service of process and agrees to take any and
all action, including the filing of any and all documents and instruments, that
may be necessary to continue such appointment in full force and effect as
aforesaid. Service of process upon the Authorized Agent and written notice of
such service to the Company and the Selling Shareholder, as the case may be,
shall be deemed, in every respect, effective service of process upon the Company
and the Selling Shareholder, as the case may be.

     16. In respect of any judgment or order given or made for any amount due
hereunder that is expressed and paid in a currency (the "judgment currency")
other than United States dollars, the Company and the Selling Shareholder, as
the case may be, will indemnify each Underwriter against any loss incurred by
such Underwriter as a result of any variation as between (a) the rate of
exchange at which the United States dollar amount is converted into the judgment
currency for the purpose of such judgment or order and (b) the rate of exchange
at which an Underwriter is able to purchase United States dollars with the
amount of the judgment currency actually received by such Underwriter. The
foregoing indemnity shall constitute a separate and independent obligation of
the Company and the Selling Shareholder and shall continue in full force and
effect notwithstanding any such judgment or order as aforesaid. The term "rate
of exchange" shall include any premiums and costs of exchange payable in
connection with the purchase of or conversion into United States dollars.

     17. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.

     18. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.

     19. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.

     20. This Agreement and the Other Underwriting Agreements constitute the
entire agreement among the parties and supersede all prior agreements and
understandings, oral or written, with respect to the matters set forth herein.

                                       41


     If the foregoing is in accordance with your understanding, please sign and
return to us eight counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and the Selling Shareholder. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Shareholder for examination upon
request, but without warranty on your part as to the authority of the signers
thereof.


                                   Very truly yours,

                                   Chunghwa Telecom Co., Ltd.

                                   By:
                                       -----------------------------------------
                                       Name:
                                       Title:


                                   Ministry of Transportation and Communications

                                   By:
                                       -----------------------------------------
                                       Name:
                                       Title:

Accepted as of the date hereof
on behalf of each of the Underwriters

[Name of Representative]

By:
    ---------------------------------
    Name:
    Title:

                                       42


                                   SCHEDULE I




                                                                Number of Optional
                                                                       ADSs
                                                                       to be
                                          Total Number of          Purchased if
                                               ADSs               Maximum Option
Underwriter                               to be Purchased            Exercised
- -----------                               ---------------       ------------------
                                                          
[Name of Representative]

[Name(s) of Co-Representative(s)]

[Names of other Underwriters]






                                          ---------------       ------------------
     Total
                                          ===============       ==================


                                      I-1


                                                                         ANNEX I


                             FORM OF COMFORT LETTER


     Pursuant to Section 7(g) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:

     1.   (i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;

          (ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial forecasts
and/or pro forma financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as indicated
in their reports thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives");

          (iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus as indicated in
their reports thereon copies of which have been separately furnished to the
Representatives; and on the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and accounting
matters regarding whether the unaudited condensed consolidated financial
statements referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the Act and the
related published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;

          (iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for the
five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years which were included
or incorporated by reference in the Company's Annual Reports on Form 20-F for
such fiscal years;

          (v) They have compared the information in the Prospectus under
selected

                                      A-1



captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 8 and 11 of Form 20-F and of Regulation S-K;

          (vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards, consisting
of a reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute books
of the Company and its subsidiaries since the date of the latest audited
financial statements included in the Prospectus, inquiries of officials of the
Company and its subsidiaries responsible for financial and accounting matters
and such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:

          (A) the unaudited consolidated statements of income, consolidated
     balance sheets and consolidated statements of cash flows included in the
     Prospectus do not comply as to form in all material respects with the
     applicable accounting requirements of the Act and the related published
     rules and regulations, or (ii) any material modifications should be made to
     the unaudited condensed consolidated statements of income, consolidated
     balance sheets and consolidated statements of cash flows included in the
     Prospectus for them to be in conformity with generally accepted accounting
     principles;

          (B) any other unaudited income statement data and balance sheet items
     included in the Prospectus do not agree with the corresponding items in the
     unaudited consolidated financial statements from which such data and items
     were derived, and any such unaudited data and items were not determined on
     a basis substantially consistent with the basis for the corresponding
     amounts in the audited consolidated financial statements included in the
     Prospectus;

          (C) the unaudited financial statements which were not included in the
     Prospectus but from which were derived any unaudited condensed financial
     statements referred to in clause (A) and any unaudited income statement
     data and balance sheet items included in the Prospectus and referred to in
     clause (B) were not determined on a basis substantially consistent with the
     basis for the audited consolidated financial statements included in the
     Prospectus;

          (D) any unaudited pro forma consolidated condensed financial
     statements included in the Prospectus do not comply as to form in all
     material respects with the applicable accounting requirements of the Act
     and the published rules and regulations thereunder or the pro forma
     adjustments have not been properly applied to the historical amounts in the
     compilation of those statements;

          (E) as of a specified date not more than five days prior to the date
     of such letter, there have been any changes in the consolidated capital
     stock (other than

                                      A-2


     issuances of capital stock upon exercise of options and stock appreciation
     rights, upon earn-outs of performance shares and upon conversions of
     convertible securities, in each case which were outstanding on the date of
     the latest financial statements included in the Prospectus) or any increase
     in the consolidated long-term debt of the Company and its subsidiaries, or
     any decreases in consolidated net current assets or Shareholder' equity or
     other items specified by the Representatives, or any increases in any items
     specified by the Representatives, in each case as compared with amounts
     shown in the latest balance sheet included in the Prospectus, except in
     each case for changes, increases or decreases which the Prospectus
     discloses have occurred or may occur or which are described in such letter;
     and

          (F) for the period from the date of the latest financial statements
     included in the Prospectus to the specified date referred to in clause (E)
     there were any decreases in consolidated net revenues or operating profit
     or the total or per share amounts of consolidated net income or other items
     specified by the Representatives, or any increases in any items specified
     by the Representatives, in each case as compared with the comparable period
     of the preceding year and with any other period of corresponding length
     specified by the Representatives, except in each case for decreases or
     increases which the Prospectus discloses have occurred or may occur or
     which are described in such letter; and

          (vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (vi)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement; and

     2.   (i) They have performed procedures agreed upon between themselves and
the Underwriters, with such procedures set forth in a report that is issued
separately from the comfort letter. Such report shall contain, among other
things as agreed between the accountants and the Underwriters, a schedule for
each of the four years from 1999 to 2002, setting forth selected financial data
prepared in accordance with (x) ROC GAAP, (y) ROC GAAP after adjustments by the
Government of the ROC and (z) US GAAP. The procedures involved shall include:

          (A) Tracing the number to the selected financial data table included
     in the Prospectus, noting agreement;

          (B) Clerically re-footing the amount across, noting agreement; and

                                      A-3


          (C) Recomputing percentages/ratios, noting agreement.

                                      A-4

EX-3.1

                                                                     EXHIBIT 3.1



                                  [Translation]


             Articles of Incorporation of Chunghwa Telecom Co., Ltd.


1.   All 26 articles adopted by Promoters Meeting on June 11, 1996.
2.   Article 15 amended by General Shareholders Meeting on December 26, 1997.
3.   Articles 2 and 22 amended by General Shareholders Meeting on November 25,
     1998.
4.   Paragraph 1 of Article 21, amended by Special Shareholders Meeting on
     July 13, 1999.
5.   Articles 2, 3, 6, 7, 10, 12, 13, 19, 21 and 22 amended, and Articles 6-1
     and 7-1 inserted by General Shareholders Meeting on June 4, 2001.
6.   Articles 2, 7, 8, 9, 10, 19, 21, and 22 amended and Article 5 deleted by
     General Shareholders Meeting on June 21, 2002.
7.   Articles 2 amended by General Shareholders Meeting on June 17, 2003.


Chapter I - General Provisions

Article 1 -    The Company is promoted by the Ministry of Transportation and
               Communications ("MOTC") and others and organized under the
               Telecommunication Law, the Statute of Chunghwa Telecom Co., Ltd.
               (hereinafter referred to as the "Corporation Statute") and the
               provisions of the Company Law pertaining to companies limited by
               shares and is named "Chunghwa Telecom Co., Ltd.".

               The English name of the Company is "Chunghwa Telecom Co., Ltd.".

Article 2 -    The scope of business of the Company shall be as follows:

               1)   Telecommunications Enterprise of Type 1 (G901011);
               2)   Telecommunications Enterprise of Type 2 (G902011);
               3)   Installation of the Computer Equipment Business (E605010);
               4)   Telecommunication Equipment Wholesale Business (F113070);
               5)   Telecommunication Equipment Retail Business (F213060);
               6)   Telecommunication Engineering Business (E701010);
               7)   Installation of the Radio-Frequency Equipment whose
                    operation is controlled by the Telecommunication Business
                    (E701030);
               8)   Information Software Service Business (I301010);
               9)   Other Designer Businesses [the design of the computer
                    information hardware] (I599990);
               10)  Rental Business (I601010);
               11)  Publishing Business (J304011);
               12)  Other Wholesale Businesses [telephone card and IC card]
                    (F199990);
               13)  Enterprise Management and Consulting Service Business
                    (I103010);

               14)  Professional Training Business (J201011);
               15)  Other Corporation Service Businesses [telephone card, IC
                    card, the research and development of the telecommunication
                    facilities and devices, accepting payment on behalf of
                    businesses and institutions, telecommunication equipment
                    inspection services, and agency sale of entry tickets and
                    travel fares] (IZ99990);
               16)  Other Retail Businesses [telephone card and IC card]
                    (F299990);
               17)  Online Certification Service Businesses (IZ13010);
               18)  Supply of Electronic Information Service Businesses
                    (I301030);
               19)  Information Process Service Business (I301020);
               20)  Telecommunication Account Application Agency Businesses
                    (IE01010);
               21)  Management of Overdue Accounts Payable Service Businesses
                    (IZ11010);
               22)  Real Estate Rental Businesses (H703100);
               23)  Vocational Skills Training Businesses (J201030);
               24)  Waste Disposal Businesses (J101040);
               25)  Community Common Cable Television Equipment Businesses
                    (J502020);
               26)  Exhibition Service Businesses (JB01010);
               27)  General Advertising Service Businesses (I401010);
               28)  Department Store Businesses (F301010);
               29)  Communication Newsletter Businesses (J302010);
               30)  Credit Investigation Service Businesses (I201010);
               31)  Public Notarization Businesses (IZ07010);
               32)  Parking Lot Operation Businesses (G202010);
               33)  Environmental Assessment Service Businesses (J101050);
               34)  Engineering Consultancy Businesses (I101061);
               35)  Information Storage an Process Equipment Manufacturing
                    Businesses (CC01050);
               36)  Electronic Component Manufacturing Businesses (CC01080);
               37)  Other Electrical and Electronic Machinery & Equipment
                    Manufacturing Businesses [IC or Optical Card Scanners]
                    (CC01990);
               38)  Radio-Frequency Equipment Import Business (F401021);
               39)  Cable System Operator Business (J504011); and
               40)  Except the permitted business, the Company may engage in
                    other businesses not prohibited or restricted by laws and
                    regulations.

               The Company may handle endorsement and guaranty affairs in
               accordance with the Operation Procedures for the Endorsement and
               Guaranty of the Company if there is any business need.

Article 3 -    The Company may invest in telecommunication-related business or
               other businesses approved by MOTC.

               The requirement for approval of MOTC in the preceding paragraph
               shall cease to apply as of the time that the Company becomes
               privatized.

               Total amount of investments engaged by the Company may not be
               limited to the amount stipulated in Article 13 of the Company
               Law.

               "Privatized" as used in these Articles shall refer to the day
               that Government holds less than fifty percent (50%) of paid-up
               capital of the Company.

Article 4 -    The head office of the Company is located in Taipei City and the
               Company may establish branch office(s) and liaison office(s) at
               appropriate locations within or outside the territory of the
               Republic of China.

Article 5 -    (Deleted)


Chapter II - Shares

Article 6 -    The registered capital of the Company shall be Ninety Six Billion
               Four Hundred Seventy Seven Million Two Hundred Forty Nine
               Thousand and Twenty New Taiwan Dollars (NT$96,477,249,020),
               divided into Nine Billion Six Hundred Forty Seven Million Seven
               Hundred Twenty Four Thousand and Nine Hundred (9,647,724,900)
               common shares and Two (2) preferred shares with a par value of
               Ten New Taiwan Dollars (NT$10) per share. All the common shares
               shall be fully issued and the preferred shares shall be issued by
               the Board of Directors pursuant to the laws and regulations.

Article 6-1 -  The rights, obligations, and other important conditions
               regarding the preferred shares issued by the Company are stated
               as follows:

               1) The rights of the preferred shares with respect to the
                  distribution of dividends and bonuses, the Company's retained
                  properties, and the Company's profits and capital reserve in
                  cash or the appropriated capital, etc. shall be equal to those
                  of the common shares.

               2) The shareholder(s) of the preferred shares has/have the same
                  right to vote or election with those of the shareholder(s) of
                  the common shares at a common shareholders' meeting.

               3) During the term of the preferred shares, the shareholder(s) of
                  the preferred share shall be the director(s) and supervisor(s)
                  and may be re-appointed by MOTC at any time.

               4) When the Company issues new shares in cash, the shareholder(s)
                  of the preferred shares shall have the same preemptive rights
                  with respect to the new shares as those of the shareholder(s)
                  of the common shares.

               5) The Company shall obtain the consents of the shareholder(s) of
                  the preferred shares before engaging in the following matters
                  and, failing so, the action will be deemed void:

                  (1) To amend the Company's name
                  (2) To amend the Company's business scope
                  (3) To transfer all or the essential part of the Company's
                      business or assets

               6) The preferred shares issued by the Company shall not be
                  transferred. At the end of the third year from the issuance
                  date of the preferred shares, the Company shall reacquire the
                  preferred shares by their par value and then cancel them. The
                  issuance date shall be the record date of the capital increase
                  of the preferred shares.

Article 7 -    The share certificates of the Company shall bear the
               shareholders' names, be signed or sealed by the Chairman and at
               least two other directors, be serially numbered, affixed with the
               corporate seal of the Company, and legalized by the Ministry of
               Economic Affairs ("MOEA") (hereinafter referred to as the
               "Competent Authority") or its certified issuance registration
               agency before they are issued in accordance with the relevant
               laws.

               When issuing new shares, the Company may print a share
               certificate in respect of the full number of shares to be issued
               at that time, and shall arrange for the certificate to be kept by
               a centralized securities custodian institution, in which case the
               preceding requirement for serial numbering of share certificates
               shall not apply.

               Shares issued by the Company may also be exempt from printing of
               share certificates, and the Company shall arrange for such shares
               to be recorded by a centralized securities custodian institution,
               in which case the preceding 2 paragraphs shall not apply.

               Any affair with regard to the shares of the Company shall be
               handled in accordance with the Guidelines for Handling Stock
               Affairs by a Public Issuing Company.

Article 7-1 -  The share certificates issued by the Company may be jointly
               exchanged for the share certificates with a larger par value upon
               the request of the Taiwan Securities Centralized Depository
               Company Limited by Shares.


Chapter III - Shareholders' Meeting

Article 8 -    Shareholders' meetings shall be of two types: general
               shareholders' meeting and special shareholders' meeting. Except
               as otherwise provided in the Company Law, shareholders' meetings
               shall be convened by the Board of Directors.

               The general shareholders' meeting shall be convened at least once
               every year and shall be convened within six (6) months after the
               close of each fiscal year except as otherwise approved by the
               Competent Authority for good cause shown.

               The special shareholders' meeting shall be convened at such time
               as may be deemed necessary pursuant to relevant laws and
               regulations.

Article 9 -    Where a shareholders' meeting is convened by the board of
               directors, the chairman of the Company shall act as the chairman
               of the shareholders' meeting. In the event that the chairman is
               to be on leave of absence or cannot attend the meeting for any
               cause whatsoever, the vice-chairman, or where the chairman and
               the vice-chairman are both to be on leave of absence or cannot
               attend the meeting for any cause whatsoever, one of the directors
               appointed by the chairman, or, where there is no appointment, a
               director elected among all the directors, may act on behalf of
               the chairman.

               Where a shareholders' meeting is convened by a person with
               authority other than the board of directors, such convener shall
               act as the chairman of the shareholders' meeting. Where there are
               two (2) or more conveners, the chairman of the meeting shall be
               elected amongst such conveners.

Article 10 -   Each shareholder of the Company shall be entitled to one vote for
               each share held.

Article 11 -   The government shareholder(s) may be represented by individuals
               appointed by the MOTC; if there are numerous representatives,
               they may be each elected as the directors or supervisors.


Chapter IV - Directors and Supervisors

Article 12 -   The Company shall have fifteen (15) directors to form the Board
               of Directors, one-fifth (1/5) of whom shall be expert
               representatives.

               The Board of Directors shall have one (1) chairman elected by and
               from among the directors with the concurrence of a general
               majority of the directors present at a meeting attended by at
               least two-thirds (2/3) of the directors and shall have one (1)
               vice-chairman elected in the same way.

               The Company shall have four (4) supervisors.

               During the term of the preferred shares, there shall be at least
               one (1) seat of the directors and the supervisors each reserved
               for the shareholders of the preferred shares.

Article 13 -   The tenure of office of the directors and supervisors will be
               three (3) years and they will be eligible for re-election.

               The tenure of the directors and supervisors of the shareholders
               of the preferred shares appointed without election and who are
               not subject to any restriction of the tenure set forth in the
               previous paragraph ends upon the termination of the issuance
               period of the preferred shares.

               In the event that the representative of a government or corporate
               body is elected as the director or the supervisor, the government
               or corporate body may reappoint such representative at anytime to
               supplement the original tenure.

Article 14 -   The following items shall be decided by the Board of Directors:

               (1)  The regulations with regard to the organization of the
                    Company;
               (2)  The yearly business policy and budgets;
               (3)  The establishment, amendment, and abolishment of the branch
                    and liaison offices within or outside the territory of the
                    Republic of China;
               (4)  The appointment or removal of any managerial officers;
               (5)  The personnel regulations of the Company; and

               (6)  The administrative regulations of the Company's equipment.

               Other matters in relation to the execution of the Company's
               business, except for issues that shall be submitted to MOTC for
               approval or that are the items which shall be decided at the
               shareholders' meeting in accordance with the relevant laws or
               this Articles of Incorporation, shall be determined at the Board
               of Directors meeting.

Article 15 -   The board of directors' meeting shall be convened every two (2)
               months. The special board of directors' meeting shall be convened
               at such time as may be deemed necessary. Both meetings shall be
               convened by the chairman of the Company and such chairman shall
               act as the chairman of the meeting. In the event that the
               chairman cannot attend the meeting for any cause whatsoever, the
               vice-chairman, or where the chairman and the vice-chairman are
               both to be on leave of absence or cannot attend the meeting for
               any cause whatsoever, one of the directors appointed by the
               chairman, or, where there is no appointment, a director elected
               among all the directors, may act on behalf of the chairman.

Article 16 -   All directors shall attend every board of directors' meeting; in
               case any of the directors cannot attend the meeting for any cause
               whatsoever, he/she may designate the other directors to act on
               his/her behalf and such agent shall present the proxy setting
               forth the vested power of the purpose of the meeting each time.
               However, each agent shall only accept one appointment from the
               directors.

               Except as otherwise provided in the relevant laws or this
               Articles of Incorporation, any resolution of a board of
               directors' meeting shall be adopted at a meeting which at least
               general majority of the directors attend and at which meeting a
               general majority of the directors present vote in favor of such
               resolution.

               Minutes of meetings shall be prepared for all resolutions adopted
               at a board of directors' meeting.

 Article 17 -  The supervisors shall perform the following functions:

               (1)  To investigate the business and financial condition of the
                    Company;
               (2)  To inspect the books, records and documents of the Company.

Article 18 -   In addition to performing the functions of a supervisor in
               accordance with the relevant laws, the supervisors may attend the
               board of directors' meeting to express his/her opinion but may
               not participate in any voting.


Chapter V - Managerial Officers

Article 19 -   The Company shall have one general manager, several deputy
               executive general managers and deputy general managers.

               The general manager shall be a director who has professional
               knowledge in telecommunication management.

Article 20 -   The general manager shall take charge of all affairs of the
               Company and supervise its personnel in accordance with the
               relevant laws, this Articles of Incorporation, and the
               resolutions adopted in the board of directors' meeting.

               The powers and duties of the board of directors and the general
               manager shall be separated in accordance with the Powers and
               Duties Chart.


Chapter VI - Accounting

Article 21 -   The fiscal year of the Company shall be from January 1 to
               December 31 of each year.

               At the end of each fiscal year, the board of directors shall
               prepare the following statements and reports, and submit the same
               to the supervisor(s) for examination thirty (30) days prior to
               the annual shareholders' meeting, and then shall submit the same
               to the annual shareholders' meeting for adoption.

               (1)  Report of Operations;
               (2)  Financial statements;
               (3)  Resolution governing the distribution of profit or the
                    making-up of losses.

Article 22 -   After the Company has paid all payable taxes at the end of each
               fiscal year, the Company shall make up its accumulated losses and
               set aside ten percent (10 %) of the net profit as the statutory
               revenue reserve before distribution of profits, except when the
               accumulated amount of such legal reserve equals to the Company's
               total authorized capital. The Company may also set aside special
               reserve(s) according to the business need or rules after the
               Company. Fifty

               percent (50%) of the total amount of the balance plus accumulated
               retained profits from the previous year shall be distributed in
               the following manner:

               1)   Employee bonuses not less than one percent (1%);
               2)   Remuneration for directors and supervisors not higher than
                    two-thousandth (0.2%);
               3)   The remainder after deducting amounts in subparagraphs 1)
                    and 2) shall be shareholders' dividends. Cash dividends
                    shall not be below ten percent (10%) of the total dividends,
                    but when the cash dividends fall below NT$0.1 per share,
                    dividends shall be distributed in the form of stocks.

               Subparagraphs 1) and 2) of the preceding paragraph shall apply
               after the Company becomes privately owned, in respect of
               distribution of profits for the subsequent fiscal year.

               As the Company belongs to an industry with concentrated capital
               and technology, and parts of its businesses are currently at
               developmental and expansion stages, expenditure of capital will
               change with technological advancements and market competition. In
               light of future capital needs and long-term financial planning,
               the percentage of profit distribution stipulated in paragraph 1
               may be adjusted based on such relevant factors as actual
               profitability for the year, capital budgeting and status of
               finances, and shall be executed following resolution by
               shareholders' meeting.

               Dividends and bonuses shall not be distributed where the Company
               has no profits, provided that where the statutory revenues
               reserve exceeds fifty percent (50%) of paid-up capital of the
               Company, the portion in excess may be distributed as
               shareholders' dividends.

Article 23 -   In the event that the Company issues new shares for the purpose
               of raising funds, the Company shall apply to the MOTC for
               approval to reserve not more than ten percent (10%) of the total
               newly issued shares for preemptive subscription at a discount by
               employees of the Company.

               When MOTC sells the government-owned shares of the Company, the
               employees of the Company shall have the preemptive rights to
               subscribe for such shares at a discount, pursuant to the
               subscription amount set forth in the Statute for the
               Privatization of Public Enterprises and its relevant regulations.


Chapter VII - Supplementary Provisions

Article 24 -   The regulations with regard to the organization of the Board of
               Directors and the Company shall be separately adopted.

Article 25 -   Matters not provided herein shall be resolved in accordance with
               the Corporation Statute and the Company Law.

Article 26 -   This Articles of Incorporation was adopted on June 11, 1996.

EX-4.1

                                                                     EXHIBIT 4.1



================================================================================



                           CHUNGHWA TELECOM CO., LTD.

                                       AND

                              THE BANK OF NEW YORK

                                  As Depositary

                                       AND

              HOLDERS AND BENEFICIAL OWNERS OF AMERICAN DEPOSITARY
                                    RECEIPTS

                                Deposit Agreement

                        Dated as of _______________, 2003



================================================================================


                                DEPOSIT AGREEMENT

          DEPOSIT AGREEMENT dated as of _____________, 2003 among CHUNGHWA
TELECOM CO., LTD., a company incorporated under the laws of the Republic of
China (herein called the "Company"), THE BANK OF NEW YORK, a New York banking
corporation (herein called the "Depositary"), and all Holders and Beneficial
Owners from time to time of American Depositary Receipts issued hereunder.


                              W I T N E S S E T H :

          WHEREAS, the Company desires to provide, as hereinafter set forth in
this Deposit Agreement, for the deposit of Shares (as hereinafter defined) of
the Company from time to time with the Depositary or with the Custodian (as
hereinafter defined) as agent of the Depositary for the purposes set forth in
this Deposit Agreement, for the creation of American Depositary Shares
representing the Shares so deposited and for the execution and delivery of
American Depositary Receipts evidencing the American Depositary Shares; and

          WHEREAS, the American Depositary Receipts (as hereinafter defined) are
to be substantially in the form of Exhibit A annexed hereto, with appropriate
insertions, modifications and omissions, as hereinafter provided in this Deposit
Agreement;

          NOW, THEREFORE, in consideration of the premises, it is agreed by and
between the parties hereto as follows:


ARTICLE 1. DEFINITIONS

          The following definitions shall for all purposes, unless otherwise
clearly indicated, apply to the respective terms used in this Deposit Agreement:


     SECTION 1.01 American Depositary Shares; ADSs.

          The terms "American Depositary Shares" or "ADSs" shall mean the
securities representing the interests in the Deposited Securities (as
hereinafter defined) and evidenced by the Receipts issued hereunder and shall
include Temporary ADSs unless the context otherwise requires. Each American
Depositary Share shall represent the number of Shares specified on Exhibit A
annexed hereto, until there shall occur a distribution upon Deposited Securities
covered by Section 4.03 or a change in Deposited Securities covered by Section
4.08 with respect to which additional Receipts are not executed and delivered,
and thereafter American Depositary Shares shall evidence the amount of Shares or
Deposited Securities specified in such Sections.


     SECTION 1.02 Beneficial Owner.

          The term "Beneficial Owner" shall mean each person owning from time to
time any beneficial interest in the American Depositary Shares evidenced by any
Receipt.


     SECTION 1.03 Certificate of Payment.

          The term "Certificate of Payment" shall mean the Certificate of
Payment, which may be delivered by the Company from time to time, evidencing the
irrevocable right to receive definitive share certificates representing the
Shares delivered by or on behalf of the Company in connection with an offering
of Shares by the Company and registered in the name of the Depositary. The
Company shall instruct the Depositary in writing whenever such an offering
occurs, the Shares of which may be evidenced by Certificates of Payment.


     SECTION 1.04 Commission.

          The term "Commission" shall mean the Securities and Exchange
Commission of the United States or any successor governmental agency in the
United States.


     SECTION 1.05 Company.

          The term "Company" shall mean Chunghwa Telecom Co., Ltd., a company
limited by shares organized under the laws of the R.O.C., and its successors.


     SECTION 1.06 Custodian.

          The term "Custodian" shall mean Taipei, Taiwan office of the
International Commerce Bank of China, a bank organized under the laws of the
R.O.C., as agent of the Depositary for the purposes of this Deposit Agreement,
and any other firm or corporation which may hereafter be appointed by the
Depositary pursuant to the terms of Section 5.05, as substitute or additional
custodian or custodians hereunder, as the context shall require and shall also
mean all of them collectively.


     SECTION 1.07 Deliver, Deposit, Surrender, Transfer or Withdrawal.

          The terms "deliver", "deposit", "surrender", "transfer" or "withdraw",
when used (i) with respect to Shares: (a) in the case of book-entry Shares,
shall refer to an entry or entries in an account or accounts maintained by
institutions authorized under applicable law to effect transfers of securities,
or (b) in the case of certificated Shares, to the physical delivery, deposit,
withdrawal or transfer of certificates representing the Shares and (ii) with
respect to American Depositary Shares evidenced by Receipts, (a) in the case of
American Depositary Shares available in book-entry form, shall refer to
appropriate adjustments in the records maintained by (1) the Depositary, (2) The

                                                                               2

Depository Trust Company ("DTC") or its nominee, or (3) institutions that have
accounts with DTC, as applicable, or (b) otherwise, shall refer to the physical
delivery, deposit, surrender, transfer or withdrawal of such American Depositary
Shares evidenced by Receipts.


     SECTION 1.08 Deposit Agreement.

          The term "Deposit Agreement" shall mean this Agreement, as the same
may be amended from time to time in accordance with the provisions hereof.


     SECTION 1.09 Depositary; Corporate Trust Office.

          The term "Depositary" shall mean The Bank of New York, a New York
banking corporation, and any successor as depositary hereunder. The term
"Corporate Trust Office", when used with respect to the Depositary, shall mean
the office of the Depositary which at the date of this Agreement is 101 Barclay
Street, New York, New York 10286.


     SECTION 1.10 Deposited Securities.

          The term "Deposited Securities" as of any time shall mean Shares at
such time deposited or deemed to be deposited under this Deposit Agreement and
any and all other securities, property and cash received by the Depositary or
the Custodian in respect thereof and at such time held hereunder, subject as to
cash to the provisions of Section 4.05.


     SECTION 1.11 Dollars; NT$ or NT Dollars

          The term "US$" or "Dollars" shall mean United States dollars. The term
"NT$" or "NT Dollars" shall mean New Taiwan Dollars.


     SECTION 1.12 Foreign Registrar.

          The term "Foreign Registrar" shall mean the entity that presently
carries out the duties of registrar for the Shares or any successor as registrar
for the Shares and any other appointed agent of the Company for the transfer and
registration of Shares.


     SECTION 1.13 Holder.

          The term "Holder" shall mean the person in whose name a Receipt is
registered on the books of the Depositary maintained for such purpose.

                                                                               3

     SECTION 1.14 Receipts; ADRs.

          The terms "Receipts" or "ADRs" shall mean the American Depositary
Receipts issued hereunder evidencing American Depositary Shares and shall
include Temporary ADRs unless the context requires otherwise.


     SECTION 1.15 Registrar.

          The term "Registrar" shall mean any bank or trust company having an
office in the Borough of Manhattan, The City of New York, which shall be
appointed by the Depositary to register Receipts and transfers of Receipts as
herein provided.


     SECTION 1.16 Restricted Securities.

          The term "Restricted Securities" shall mean Shares, or Receipts
representing such Shares, which are acquired directly or indirectly from the
Company or its affiliates (as defined in Rule 144 under the Securities Act of
1933) in a transaction or chain of transactions not involving any public
offering or which are subject to resale limitations under Regulation D under
that Act or both, or which are held by an officer, director (or persons
performing similar functions) or other affiliate of the Company, or which would
require registration under the Securities Act in connection with the offer and
sale thereof in the United States, or which are subject to other restrictions on
sale or deposit under the laws of the United States or the R.O.C., or under a
shareholder agreement or the Articles of Incorporation of the Company.


     SECTION 1.17 R.O.C. or Taiwan.

          The terms "R.O.C." or "Taiwan" shall mean the Republic of China.


     SECTION 1.18 Securities Act of 1933.

          The term "Securities Act of 1933" shall mean the United States
Securities Act of 1933, as from time to time amended.


     SECTION 1.19 Shares.

          The term "Shares" shall mean common shares of the Company, heretofore
validly issued and outstanding and fully paid, nonassessable and free of any
pre-emptive rights of the holders of outstanding Shares or hereafter validly
issued and outstanding and fully paid, nonassessable and free of any pre-emptive
rights of the holders of outstanding Shares.

                                                                               4

     SECTION 1.20 Temporary ADRs.

          The term "Temporary ADRs", as defined in Section 2.10, shall mean the
Temporary American Depositary Receipts issued hereunder evidencing Temporary
ADSs.


     SECTION 1.21 Temporary ADSs.

          The term "Temporary ADSs", as defined in Section 2.10, shall mean the
securities representing interests in Certificates of Payment.


ARTICLE 2. FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND DELIVERY, TRANSFER
           AND SURRENDER OF RECEIPTS

     SECTION 2.01 Form and Transferability of Receipts.

          Definitive Receipts shall be substantially in the form set forth in
Exhibit A annexed to this Deposit Agreement with appropriate insertions,
modifications and omissions, as hereinafter provided. No Receipt shall be
entitled to any benefits under this Deposit Agreement or be valid or obligatory
for any purpose, unless such Receipt shall have been executed by the Depositary
by the manual signature of a duly authorized signatory of the Depositary;
provided, however, that such signature may be a facsimile if a Registrar for the
Receipts shall have been appointed and such Receipts are countersigned by the
manual signature of a duly authorized officer of the Registrar. The Depositary
shall maintain books on which each Receipt so executed and delivered as
hereinafter provided and the transfer of each such Receipt shall be registered.
Receipts bearing the manual or facsimile signature of a duly authorized
signatory of the Depositary who was at any time a proper signatory of the
Depositary shall bind the Depositary, notwithstanding that such signatory has
ceased to hold such office prior to the execution and delivery of such Receipts
by the Registrar or did not hold such office on the date of issuance of such
Receipts. Notwithstanding anything herein to the contrary, the Depositary shall
not issue Temporary ADRs in physical certificated form and Holders of Temporary
ADRs shall not be entitled to receive definitive Temporary ADRs, except as may
be required by any book-entry settlement system in which the Temporary ADSs are
accepted for settlement.

          On or before the date which is three months from the date of an
offering of Shares, each Temporary ADR representing an interest in a Certificate
of Payment shall bear the following legend:

PURSUANT TO THE LAWS OF THE REPUBLIC OF CHINA, THE TEMPORARY AMERICAN DEPOSITARY
SHARES REPRESENTING CERTIFICATES OF PAYMENT EVIDENCED BY THIS TEMPORARY

                                                                               5

AMERICAN DEPOSITARY RECEIPT MAY NOT BE SURRENDERED PURSUANT TO SECTION 2.05 OF
THE DEPOSIT AGREEMENT, AND SHARES, INCLUDING EVIDENCES OF THE RIGHT TO RECEIVE
SHARES, MAY NOT BE WITHDRAWN. ON THE DATE WHICH IS THREE MONTHS FROM THE DATE OF
THE OFFERING OF SHARES IN CONNECTION WITH WHICH THIS TEMPORARY AMERICAN
DEPOSITARY RECEIPT REPRESENTING AN INTEREST IN A CERTIFICATE OF PAYMENT WAS
ISSUED, AND AFTER RECEIPT BY THE CUSTODIAN OF CERTIFICATES REPRESENTING COMMON
SHARES, AND ALL TIMES SUBSEQUENT THERETO, HOLDERS AND BENEFICIAL OWNERS OF THIS
TEMPORARY ADR SHALL THEREAFTER BE HOLDERS AND BENEFICIAL OWNERS OF AMERICAN
DEPOSITARY RECEIPTS ("ADRS") ISSUED HEREUNDER AND SHALL HAVE ALL OF THE RIGHTS
AND OBLIGATIONS SET FORTH UNDER THIS DEPOSIT AGREEMENT AND THE ADRS.

TEMPORARY ADRS REPRESENTING CERTIFICATES OF PAYMENT AND THE TEMPORARY ADSS
EVIDENCED THEREBY ARE IDENTICAL TO AND CONFER ALL OF THE RIGHTS AND OBLIGATIONS
SET FORTH IN THE DEPOSIT AGREEMENT RELATING TO RECEIPTS AND AMERICAN DEPOSITARY
SHARES EVIDENCED THEREBY; PROVIDED, HOWEVER, THAT (1) HOLDERS OF TEMPORARY ADRS
REPRESENTING CERTIFICATES OF PAYMENT WILL NOT BE ABLE TO SURRENDER SUCH
TEMPORARY ADRS FOR THE PURPOSE OF WITHDRAWAL OF THE UNDERLYING DEPOSITED
SECURITIES AND (2) TEMPORARY ADRS SHALL BEAR ONE OR MORE SEPARATE CUSIP NUMBERS
THAT IS DIFFERENT FROM ANY CUSIP NUMBER THAT IS OR MAY BE ASSIGNED TO THE ADRS.

          In addition to the foregoing, the Receipts may be endorsed with or
have incorporated in the text thereof such legends or recitals or modifications
not inconsistent with the provisions of this Deposit Agreement as may be
required by the Depositary or required to comply with any applicable law or
regulations thereunder or with the rules and regulations of any securities
exchange upon which American Depositary Shares may be listed or to conform with
any usage with respect thereto, or to indicate any special limitations or
restrictions to which any particular Receipts are subject by reason of the date
of issuance of the underlying Deposited Securities or otherwise.

          Title to a Receipt (and to the American Depositary Shares evidenced
thereby), when properly endorsed or accompanied by proper instruments of
transfer, shall be transferable by delivery with the same effect as in the case
of a negotiable instrument under the laws of the State of New York; provided,
however, that the Depositary, notwithstanding any notice to the contrary, may
treat the Holder thereof as the absolute owner thereof for the purpose of
determining the person entitled to distribution of

                                                                               6

dividends or other distributions or to any notice provided for in this Deposit
Agreement and for all other purposes.


     SECTION 2.02 Deposit of Shares.

          The deposit of Shares in connection with an offering of Shares will be
made on behalf of the Company by delivery to the Custodian on behalf of the
Depositary of a Certificate of Payment, in form and substance satisfactory to
the Depositary, evidencing the irrevocable right to receive physical share
certificates representing Shares registered in the name of the Depositary or its
nominee. The Company agrees to issue and deliver the physical share certificates
represented by such Certificate of Payment in respect of such deposit on or
before three months from the date of issuance of such Shares pursuant to the
applicable offering.

          Subject to the limitations on the issuance of additional ADSs
described below, and subject terms and conditions of this Deposit Agreement,
Shares or evidence of rights to receive Shares may be deposited by delivery
thereof to any Custodian hereunder, accompanied by any appropriate instrument or
instruments of transfer, or endorsement, in form satisfactory to the Custodian,
together with all such certifications as may be required by the Depositary or
the Custodian in accordance with the provisions of this Deposit Agreement, and,
if the Depositary requires, together with a written order directing the
Depositary to execute and deliver to, or upon the written order of, the person
or persons stated in such order, a Receipt or Receipts for the number of
American Depositary Shares representing such deposit. No Share shall be accepted
for deposit unless accompanied by evidence reasonably satisfactory to the
Depositary (which may be an opinion of counsel) that any necessary approval has
been granted by any governmental body in the R.O.C. If required by the
Depositary, Shares presented for deposit at any time, whether or not the
transfer books of the Company or the Foreign Registrar, if applicable, are
closed, shall also be accompanied by an agreement or assignment, or other
instrument satisfactory to the Depositary, which will provide for the prompt
transfer to the Custodian of any dividend, or right to subscribe for additional
Shares or to receive other property which any person in whose name the Shares
are or have been recorded may thereafter receive upon or in respect of such
deposited Shares, or in lieu thereof, such agreement of indemnity or other
agreement as shall be satisfactory to the Depositary.

          The Depositary and the Company have been advised that under current
R.O.C. law, no deposits of Shares may be made in the depositary receipt
facility, and no ADSs may be issues against such deposits, without specific
approval of the R.O.C. Securities and Futures Commission (the "SFC") except in
connection with the offering and the issuance of additional ADSs in connection
with (i) dividends on or free distributions of Shares, (ii) the exercise by
Holders of their pre-emptive rights applicable to Shares evidenced by ADSs in
the event of capital increases for cash or (iii) as permitted hereunder, the
purchase directly by any person or through the Depositary of

                                                                               7

Shares on the Taiwan Stock Exchange for deposit in the depositary receipt
facility, provided that the total number of ADSs outstanding after an issuance
described in clause (iii) does not exceed the number of issues ADSs previously
approved by the SFC (plus any ADSs created pursuant to clauses (i) and (ii)
above). The Depositary and the Company have been advised that under current
R.O.C. law, issuances under clause (iii) above will be permitted only to the
extent that previously issued ADSs have been canceled and the Shares withdrawn
from the depositary receipt facility upon cancellation of such ADSs have been
sold on the Taiwan Stock Exchange. The Depositary may not accept any Shares for
deposit pursuant to clause (iii) unless it receives evidence satisfactory (which
may be in the form of opinions of R.O.C. and U.S. counsel) to the effect that
such Shares may lawfully be deposited pursuant to the Deposit Agreement and are
not Restricted Securities. The laws of the R.O.C. applicable to the deposit of
Shares may change from time to time. There can be no assurance that current laws
will continue in effect or that future changes of R.O.C. law will not adversely
affect the ability to deposit Shares hereunder.

          The Depositary and the Custodian will each refuse to accept for
deposit Shares or other securities that it reasonably believes to be Restricted
Securities. Persons depositing Shares, other than in connection with an issuance
approved by the SFC or by the Company depositing Shares constituting a free
distribution of Shares by way of dividend or stock split, will be required to
present appropriate evidence (including opinions of counsel if requested)
satisfactory to the Depositary and the Custodian that such Shares and the
issuance of the ADRs evidencing the ADSs issuable upon such deposit are not
Restricted Securities.

          At the request and risk and expense of any person proposing to deposit
Shares, and for the account of such person, the Depositary may receive
certificates for Shares to be deposited, together with the other instruments
herein specified, for the purpose of forwarding such Share certificates to the
Custodian for deposit hereunder.

          Upon each delivery to a Custodian of a certificate or certificates for
Shares to be deposited hereunder, together with the other documents above
specified, such Custodian shall, as soon as transfer and recordation can be
accomplished, present such certificate or certificates to the Company or the
Foreign Registrar, if applicable, for transfer and recordation of the Shares
being deposited in the name of the Depositary or its nominee or such Custodian
or its nominee.

          Deposited Securities shall be held by the Depositary or by a Custodian
for the account and to the order of the Depositary or at such other place or
places as the Depositary shall determine.


     SECTION 2.03 Execution and Delivery of Receipts.

          Upon receipt by any Custodian of any deposit pursuant to Section 2.02
hereunder (and in addition, if the transfer books of the Company or the Foreign
Registrar,

                                                                               8

if applicable, are open, the Depositary may in its sole discretion require a
proper acknowledgment or other evidence from the Company that any Deposited
Securities have been recorded upon the books of the Company or the Foreign
Registrar, if applicable, in the name of the Depositary or its nominee or such
Custodian or its nominee), together with the other documents required as above
specified, such Custodian shall notify the Depositary of such deposit and the
person or persons to whom or upon whose written order a Receipt or Receipts are
deliverable in respect thereof and the number of American Depositary Shares to
be evidenced thereby. Such notification shall be made by letter or, at the
request, risk and expense of the person making the deposit, by cable, telex or
facsimile transmission. Upon receiving such notice from such Custodian, or upon
the receipt of Shares by the Depositary, the Depositary, subject to the terms
and conditions of this Deposit Agreement, shall execute and deliver at its
Corporate Trust Office, to or upon the order of the person or persons entitled
thereto, a Receipt or Receipts, registered in the name or names and evidencing
any authorized number of American Depositary Shares requested by such person or
persons, but only upon payment to the Depositary of the fees and expenses of the
Depositary for the execution and delivery of such Receipt or Receipts as
provided in Section 5.09, and of all taxes and governmental charges and fees
payable in connection with such deposit and the transfer of the Deposited
Securities.

          Notwithstanding anything in this Section 2.03 to the contrary, the
Depositary shall execute and deliver Temporary ADRs evidencing Temporary ADSs
only in respect of a deposit of a Certificate of Payment in connection with an
offering of Shares.


     SECTION 2.04 Transfer of Receipts; Combination and Split-up of Receipts.

          The Depositary, subject to the terms and conditions of this Deposit
Agreement, shall register transfers of Receipts on its transfer books from time
to time, upon any surrender of a Receipt, by the Holder in person or by a duly
authorized attorney, properly endorsed or accompanied by proper instruments of
transfer, and duly stamped as may be required by the laws of the State of New
York and of the United States of America. Thereupon the Depositary shall execute
a new Receipt or Receipts and deliver the same to or upon the order of the
person entitled thereto.

          The Depositary, subject to the terms and conditions of this Deposit
Agreement, shall upon surrender of a Receipt or Receipts for the purpose of
effecting a split-up or combination of such Receipt or Receipts, execute and
deliver a new Receipt or Receipts for any authorized number of American
Depositary Shares requested, evidencing the same aggregate number of American
Depositary Shares as the Receipt or Receipts surrendered.

          The Depositary may appoint one or more co-transfer agents for the
purpose of effecting transfers, combinations and split-ups of Receipts at
designated transfer offices on behalf of the Depositary. In carrying out its
functions, a co-transfer

                                                                               9

agent may require evidence of authority and compliance with applicable laws and
other requirements by Holders or persons entitled to Receipts and will be
entitled to protection and indemnity to the same extent as the Depositary.


     SECTION 2.05 Surrender of Receipts and Withdrawal of Shares.

          Provided that the Company has delivered to the Custodian physical
share certificates represented by the Certificate of Payment in respect of a
deposit of Shares in connection with an offering, upon surrender at the
Corporate Trust Office of the Depositary of an ADR for the purpose of withdrawal
of the Deposited Securities represented by the ADSs evidenced by such ADR, upon
payment of the fee of the Depositary for the surrender and cancellation of ADRs
as provided in Section 5.09 and payment of all taxes (including any securities
transaction tax) and governmental charges payable in connection with such
surrender and withdrawal of the Deposited Securities, and subject to the terms
and conditions of this Deposit Agreement and the transfer restrictions
applicable to the Shares, if any, the Holder of such Receipt shall be entitled
to delivery, to him or upon his order, of the amount of Deposited Securities at
the time represented by the American Depositary Shares evidenced by such
Receipt. Delivery of such Deposited Securities may be made by the delivery of
(a) certificates in the name of such Holder or as ordered by him or certificates
properly endorsed or accompanied by proper instruments of transfer to such
Holder or as ordered by him and (b) any other securities, property and cash to
which such Holder is then entitled in respect of such Receipts to such Holder or
as ordered by him. Such delivery shall be made, as hereinafter provided, without
unreasonable delay.

          A Receipt surrendered for such purposes may be required by the
Depositary to be properly endorsed in blank or accompanied by proper instruments
of transfer in blank, and if the Depositary so requires, the Holder thereof
shall execute and deliver to the Depositary a written order directing the
Depositary to cause the Deposited Securities being withdrawn to be delivered to
or upon the written order of a person or persons designated in such order.
Thereupon the Depositary shall direct the Custodian to deliver at the Taipei,
Taiwan office of such Custodian, subject to Sections 2.06, 3.01 and 3.02 and to
the other terms and conditions of this Deposit Agreement, to or upon the written
order of the person or persons designated in the order delivered to the
Depositary as above provided, the number of Deposited Securities represented by
the American Depositary Shares evidenced by such Receipt, except that the
Depositary may make delivery to such person or persons at the Corporate Trust
Office of the Depositary of any dividends or distributions with respect to the
Deposited Securities represented by the American Depositary Shares evidenced by
such Receipt, or of any proceeds of sale of any dividends, distributions or
rights, which may at the time be held by the Depositary.

          At the request, risk and expense of any Holder so surrendering a
Receipt, and for the account of such Holder, the Depositary shall direct the
Custodian to forward any cash or other property (other than rights) comprising,
and forward a certificate or

                                                                              10

certificates and other proper documents of title for, the Deposited Securities
represented by the American Depositary Shares evidenced by such Receipt to the
Depositary for delivery at the Corporate Trust Office of the Depositary. Such
direction shall be given by letter or, at the request, risk and expense of such
Holder, by cable, telex or facsimile transmission.

          The Depositary shall not deliver Deposited Securities to a Holder in
accordance with this Section 2.05 unless such Holder presents evidence of
payment of any securities transaction tax which may be imposed under R.O.C. law,
unless the Company shall have advised the Depositary that no such tax is
assessable in connection with the withdrawal of Deposited Securities hereunder.

          Notwithstanding anything to the contrary in this Section 2.05, the
Holder of Temporary ADSs representing an interest in the Certificate of Payment
deposited in connection with an offering shall not be entitled to withdraw any
Deposited Securities.


     SECTION 2.06 Limitations on Execution and Delivery, Transfer and Surrender
of Receipts.

          As a condition precedent to the execution and delivery, registration
of transfer, split-up, combination or surrender of any Receipt or withdrawal of
any Deposited Securities, the Depositary, Custodian or Registrar may require
payment from the depositor of Shares or the presenter of the Receipt of a sum
sufficient to reimburse it for any tax (including any securities transaction
tax) or other governmental charge and any stock transfer or registration fee
with respect thereto (including any such tax or charge and fee with respect to
Shares being deposited or withdrawn) and any applicable fees as herein provided,
may require the production of proof satisfactory to it as to the identity and
genuineness of any signature and may also require compliance with any reasonable
regulations the Depositary may establish consistent with the provisions of this
Deposit Agreement, including, without limitation, this Section 2.06.

          The delivery of Receipts against deposit of Shares generally or
against deposit of particular Shares may be suspended, or the transfer of
Receipts in particular instances may be refused, or the registration of transfer
of outstanding Receipts generally may be suspended, during any period when the
transfer books of the Depositary are closed, or if any such action is deemed
necessary or advisable by the Depositary or the Company at any time or from time
to time because of any requirement of law or of any government or governmental
body or commission, or under any provision of this Deposit Agreement, or for any
other reason, subject to the provisions of the following sentence.
Notwithstanding anything to the contrary in this Deposit Agreement, the
surrender of outstanding Receipts and withdrawal of Deposited Securities may not
be suspended subject only to (i) temporary delays caused by closing the transfer
books of the Depositary or the Company or the deposit of Shares in connection
with voting at a shareholders' meeting or the payment of dividends, (ii) the
payment of fees, taxes and similar charges, and (iii) compliance with any U.S.
or foreign laws or governmental

                                                                              11

regulations relating to the Receipts or to the withdrawal of the Deposited
Securities. Without limitation of the foregoing, the Depositary shall not
knowingly accept for deposit under this Deposit Agreement any Shares required to
be registered under the provisions of the Securities Act of 1933, unless a
registration statement is in effect as to such Shares.


     SECTION 2.07 Lost Receipts, etc.

          In case any Receipt shall be mutilated, destroyed, lost or stolen, the
Depositary shall execute and deliver a new Receipt of like tenor in exchange and
substitution for such mutilated Receipt upon cancellation thereof, or in lieu of
and in substitution for such destroyed, lost or stolen Receipt. Before the
Depositary shall execute and deliver a new Receipt in substitution for a
destroyed, lost or stolen Receipt, the Holder thereof shall have (a) filed with
the Depositary (i) a request for such execution and delivery before the
Depositary has notice that the Receipt has been acquired by a bona fide
purchaser and (ii) a sufficient indemnity bond and (b) satisfied any other
reasonable requirements imposed by the Depositary.


     SECTION 2.08 Cancellation and Destruction of Surrendered Receipts.

          All Receipts surrendered to the Depositary shall be cancelled by the
Depositary. The Depositary is authorized to destroy Receipts so cancelled.


     SECTION 2.09 Pre-Release of Receipts.

          Notwithstanding Section 2.03 hereof, the Depositary may execute and
deliver Receipts prior to the receipt of Shares pursuant to Section 2.02 (a
"Pre-Release"). The Depositary may, pursuant to Section 2.05, deliver Shares
upon the receipt and cancellation of Receipts which have been Pre-Released,
whether or not such cancellation is prior to the termination of such Pre-Release
or the Depositary knows that such Receipt has been Pre-Released. The Depositary
may receive Receipts in lieu of Shares in satisfaction of a Pre-Release. Each
Pre-Release will be (a) preceded or accompanied by a written representation from
the person to whom Receipts or Shares are to be delivered, that such person, or
its customer, owns the Shares or Receipts to be remitted, as the case may be,
(b) at all times fully collateralized with cash, U.S. government securities or
such other collateral as the Depositary deems appropriate, (c) terminable by the
Depositary on not more than five (5) business days notice, and (d) subject to
such further indemnities and credit regulations as the Depositary deems
appropriate. The number of American Depositary Shares which are outstanding at
any time as a result of Pre-Releases will not normally exceed thirty percent
(30%) of the Shares deposited hereunder; provided, however, that the Depositary
reserves the right to change or disregard such limit from time to time as it
deems appropriate.

          The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.

                                                                              12

     SECTION 2.10 Temporary ADRs, Temporary ADSs, Exchange of Temporary ADSs for
ADSs.

          In the event the Company or any of its affiliates offers Shares in the
form of ADSs and such ADSs initially represent Certificates of Payment, such
ADSs (hereinafter, "Temporary ADSs") shall be assigned a unique CUSIP number
until such time as the Temorary ADSs no longer represent Certificates of
Payment. The Company undertakes to make Shares available in exchange for
Certificates of Payment. The Depositary shall thereupon surrender any
Certificates of Payment then eligible for exchange with the Company and the
Company shall deliver Shares to the Depositary in exchange therefor. Upon
receipt by the Depositary or the Custodian of Shares in exchange for
Certificates of Payment, the Depositary will instruct DTC to transfer the number
of Temporary ADSs held by DTC participants under the relevant number assigned to
the non-temporary ADSs (the "Standard ADSs"), and thenceforth such ADSs shall
bear the same CUSIP and ISIN numbers as the Standard ADSs. Owners and Beneficial
Owners of such Temporary ADSs shall thereafter be Owners and Beneficial Owners
of Standard ADSs and shall have all of the rights and obligations set forth
under the Deposit Agreement and the ADRs evidencing the Standard ADSs.


ARTICLE 3. CERTAIN OBLIGATIONS OF HOLDERS AND BENEFICIAL OWNERS OF RECEIPTS

     SECTION 3.01 Filing Proofs, Certificates and Other Information.

          Any person presenting Shares for deposit or any Holder or Beneficial
Owner of a Receipt may be required from time to time to file with the Depositary
or the Custodian such proof of citizenship or residence, exchange control
approval, or such information relating to the registration on the books of the
Company or the Foreign Registrar, if applicable, to execute such certificates
and to make such representations and warranties, as the Depositary may deem
necessary or proper. The Depositary may withhold the delivery or registration of
transfer of any Receipt or the distribution of any dividend or sale or
distribution of rights or of the proceeds thereof or the delivery of any
Deposited Securities until such proof or other information is filed or such
certificates are executed or such representations and warranties made and any
required exchange control approval obtained.


     SECTION 3.02 Liability of Holder or Beneficial Owner for Taxes.

          If any tax or other governmental charge shall become payable by the
Custodian or the Depositary with respect to any Receipt or any Deposited
Securities represented by any Receipt (including any securities transaction
tax), such tax or other governmental charge shall be payable by the Holder or
Beneficial Owner of such Receipt to the Depositary. The Depositary may refuse to
effect any transfer of such Receipt or any withdrawal of Deposited Securities
represented by American Depositary Shares evidenced by such Receipt until such
payment is made, and may withhold any dividends

                                                                              13

or other distributions, or may sell for the account of the Holder or Beneficial
Owner thereof any part or all of the Deposited Securities represented by the
American Depositary Shares evidenced by such Receipt, and may apply such
dividends or other distributions or the proceeds of any such sale in payment of
such tax or other governmental charge and the Holder or Beneficial Owner of such
Receipt shall remain liable for any deficiency.


     SECTION 3.03 Representations and Warranties on Deposit, Transfer, Surrender
and Withdrawal of Shares or Receipts.

          Each person presenting Shares for deposit under this Deposit Agreement
shall be deemed thereby to represent and warrant that (i) such Shares and each
certificate therefor are duly and validly authorized, issued and outstanding,
fully paid and nonassessable and free of any preemptive rights of the holders of
outstanding Shares and (ii) the person making such deposit is duly authorized so
to do. Such representations and warranties shall survive the deposit and
withdrawal of Shares and the issuance or cancellation of Receipts or adjustments
in the Depositary's records in respect thereof.

          Each person depositing Shares, taking delivery of or transferring
Receipts or any beneficial interest therein, or surrendering Receipts or any
beneficial interest therein and withdrawing Shares under this Deposit Agreement
shall be deemed thereby to represent and warrant that such Shares or Receipts
are not Restricted Securities and that any such deposit, sale, transfer or
surrender and withdrawal is not restricted under the Securities Act of 1933 and
is in accordance with the applicable restrictions and conditions on
transferability set forth in this Deposit Agreement, in each case in accordance
with any applicable securities laws of any State of the United States. Such
representations and warranties shall survive any such deposit, sale, transfer or
surrender and withdrawal of the Shares or the receipts or beneficial interest
therein.


     SECTION 3.04 Disclosure of Interests.

          The Company and the Depositary may from time to time request Holders
or former Holders to provide information as to the capacity in which such
Holders hold or held ADRs and regarding the identity of any other persons then
or previously interested in such ADRs and the nature of such interest and
various other matters as may be required to comply with applicable law or the
Articles of Incorporation of the Company. Each such Holder agrees to provide any
information requested by the Company or the Depositary pursuant to this Section
3.04 and any applicable laws or regulations whether or not still a Holder at the
time of such request.


     SECTION 3.05 Ownership Restrictions.

          Notwithstanding any other provision of this Deposit Agreement, the
Company may, subject to any applicable laws and regulations, restrict deposits
of the Shares where such deposit might result in ownership of Shares exceeding
the limits under

                                                                              14

applicable law or the Company's Articles of Incorporation. Currently, under the
Telecommunications Act of the R.O.C., the total direct and indirect shareholding
of the Company by non-R.O.C. persons may not exceed twenty percent (20%) of the
total outstanding Shares, which shareholding limitation may change from time to
time. The Company may, in its sole discretion, instruct the Depositary in
writing to take action with respect to the ownership interest of any Holder in
excess of the limitation set forth in the preceding sentence, including but not
limited to refusing to accept Shares for deposit from a holder of Shares in
excess of the applicable limitation if a deposit of Shares would result in a
violation of such limitations, if and to the extent such action is permitted by
any applicable law. The Depositary shall use its reasonable efforts to comply
with the written instructions of the Company as provided in this Section, only
if such instructions are reasonable and practicable.


     SECTION 3.06 Compliance with Information Requests.

          Notwithstanding any other provision of this Deposit Agreement, each
Holder agrees to comply with requests from the Company pursuant to R.O.C. law
and any stock exchange on which the Shares are, or will be, registered, traded
or listed or the Articles of Incorporation of the Company, which are made to
provide information, inter alia, as to the capacity in which such Holder owns
Receipts (and Shares as the case may be) and regarding the identity of any other
person interest in such Receipts and the nature of such interest, and the
Depositary agrees to use its reasonable efforts to comply with written
instructions, only if such instructions are reasonable and practicable, received
from the Company requesting that the Depositary forward any such request from
the Company to the Holder and to forward to the Company any such responses to
such requests received by the Depositary.


     SECTION 3.07 Tax Guarantor; Securities Trading Account.

          The Depositary and the Company have been advised that under current
R.O.C. law, a Holder who is a non-R.O.C. person wishing to withdraw Deposited
Securities from the ADR facility is required to appoint an eligible agent in the
R.O.C. for filing tax returns and making tax payments (a "Tax Guarantor"). Such
Tax Guarantor will be required to meet the qualifications set by the Ministry of
Finance of the R.O.C. and will act as the guarantor of the withdrawing Holder's
tax payment obligations. In addition, subject to certain limited exceptions,
under current R.O.C. law, repatriation of profits by a non-R.O.C. withdrawing
Holder is subject to the submission of evidence by the withdrawing Holder of the
appointment of a Tax Guarantor to, and approval thereof by, the tax authority.

          The Depositary and the Company have also been advised that, under
current R.O.C. law, such withdrawing Holder is required to appoint a local agent
in the R.O.C. to, among other things, open a securities trading account with a
local securities brokerage firm, remit funds and exercise shareholder's rights.
In addition, such withdrawing Holder is also required to appoint a custodian
bank to hold the securities and

                                                                              15

cash in safekeeping, make confirmations and settle trades and report all
relevant information. Without making such appointment and the opening of such
account, the withdrawing Holder would be unable to hold or subsequently sell the
Deposited Securities withdrawn from the ADR facility on the Taiwan Stock
Exchange or otherwise. The laws of the R.O.C. applicable to the withdrawal of
Deposited Securities may change from time to time. There can be no assurances
that current law will remain in effect or that future changes of R.O.C. law will
not adversely affect the ability of Holders to withdraw Deposited Securities
hereunder.


ARTICLE 4. THE DEPOSITED SECURITIES

     SECTION 4.01 Cash Distributions.

          Whenever the Depositary shall receive any cash dividend or other cash
distribution on any Deposited Securities, the Depositary shall, subject to the
provisions of Section 4.05, convert such dividend or distribution into Dollars
and shall distribute the amount thus received (net of the fees and expenses of
the Depositary as provided in Section 5.09) to the Holders entitled thereto, in
proportion to the number of American Depositary Shares representing such
Deposited Securities held by them respectively; provided, however, that in the
event that the Company or the Depositary shall be required to withhold and does
withhold from such cash dividend or such other cash distribution an amount on
account of taxes, the amount distributed to the Holder of the Receipts
evidencing American Depositary Shares representing such Deposited Securities
shall be reduced accordingly. The Depositary shall distribute only such amount,
however, as can be distributed without attributing to any Holder a fraction of
one cent. Any such fractional amounts shall be rounded to the nearest whole cent
and so distributed to Holders entitled thereto. The Company or its agent will
withhold and pay to the appropriate governmental agency in the R.O.C. all
amounts withheld and owing to such agency. The Depositary will forward to the
Company or its agent such information from its records as the Company may
reasonably request to enable the Company or its agent to file necessary reports
with governmental agencies, and the Depositary or the Company or its agent may
file any such reports necessary to obtain benefits under the applicable tax
treaties for the Holders of Receipts.


     SECTION 4.02 Distributions Other Than Cash, Shares or Rights.

          Subject to the provisions of Sections 4.11 and 5.09, whenever the
Depositary shall receive any distribution other than a distribution described in
Section 4.01, 4.03 or 4.04, the Depositary shall cause the securities or
property received by it to be distributed to the Holders entitled thereto, after
deduction or upon payment of any fees and expenses of the Depositary or any
taxes or other governmental charges, in proportion to the number of American
Depositary Shares representing such Deposited Securities held by them
respectively, in any manner that the Depositary may deem equitable and
practicable for accomplishing such distribution; provided, however, that if in
the reasonable opinion of the Depositary such distribution cannot be made

                                                                              16

proportionately among the Holders entitled thereto, or if for any other reason
(including, but not limited to, any requirement that the Company or the
Depositary withhold an amount on account of taxes or other governmental charges
or that such securities must be registered under the Securities Act of 1933 in
order to be distributed to Holders or Beneficial Owners) the Depositary deems
such distribution not to be feasible, the Depositary may adopt such method as it
may deem equitable and practicable for the purpose of effecting such
distribution, including, but not limited to, the public or private sale of the
securities or property thus received, or any part thereof, and the net proceeds
of any such sale (net of the fees and expenses of the Depositary as provided in
Section 5.09) shall be distributed by the Depositary to the Holders entitled
thereto, all in the manner and subject to the conditions described in Section
4.01.


     SECTION 4.03 Distributions in Shares.

          If any distribution upon any Deposited Securities consists of a
dividend in, or free distribution of, Shares, the Depositary may, and will if
the Company so requests, distribute to the Holders of outstanding Receipts
entitled thereto, in proportion to the number of American Depositary Shares
representing such Deposited Securities held by them respectively, additional
Receipts evidencing an aggregate number of American Depositary Shares
representing the amount of Shares received as such dividend or free
distribution, subject to the terms and conditions of the Deposit Agreement with
respect to the deposit of Shares and the issuance of American Depositary Shares
evidenced by Receipts, including the withholding of any tax or other
governmental charge as provided in Section 4.11 and the payment of the fees and
expenses of the Depositary as provided in Section 5.09. The Depositary may
withhold any such distribution of Receipts if it has not received satisfactory
assurances from the Company (which may be an opinion of counsel) that such
distribution does not require registration under the Securities Act of 1933 or
is exempt from registration under the provisions of such Act. If additional
Receipts are not so distributed, each American Depositary Share shall
thenceforth also represent the additional Shares distributed upon the Deposited
Securities represented thereby. In lieu of delivering Receipts for fractional
American Depositary Shares in any such case, the Depositary shall sell the
amount of Shares represented by the aggregate of such fractions and distribute
the net proceeds, all in the manner and subject to the conditions described in
Section 4.01.


     SECTION 4.04 Rights.

          In the event that the Company shall offer or cause to be offered to
the holders of any Deposited Securities any rights to subscribe for additional
Shares or any rights of any other nature, the Depositary shall have discretion
as to the procedure to be followed in making such rights available to any
Holders or in disposing of such rights on behalf of any Holders and making the
net proceeds available in Dollars to such Holders or, if by the terms of such
rights offering or for any other reason, the Depositary may not either make such
rights available to any Holders or dispose of such rights and make the

                                                                              17

net proceeds available to such Holders, then the Depositary shall allow the
rights to lapse. If at the time of the offering of any rights the Depositary
determines in its discretion that it is lawful and feasible to make such rights
available to all or certain Holders but not to other Holders, the Depositary may
distribute to any Holder to whom it determines the distribution to be lawful and
feasible, in proportion to the number of American Depositary Shares held by such
Holder, warrants or other instruments therefor in such form as it deems
appropriate.

          In circumstances in which rights would otherwise not be distributed,
if a Holder of Receipts requests the distribution of warrants or other
instruments in order to exercise the rights allocable to the American Depositary
Shares of such Holder hereunder, the Depositary will make such rights available
to such Holder upon written notice from the Company to the Depositary that (a)
the Company has elected in its sole discretion to permit such rights to be
exercised and (b) such Holder has executed such documents as the Company has
determined in its sole discretion are reasonably required under applicable law.

          If the Depositary has distributed warrants or other instruments for
rights to all or certain Holders, then upon instruction from such a Holder
pursuant to such warrants or other instruments to the Depositary from such
Holder to exercise such rights, upon payment by such Holder to the Depositary
for the account of such Holder of an amount equal to the purchase price of the
Shares to be received upon the exercise of the rights, and upon payment of the
fees and expenses of the Depositary and any other charges as set forth in such
warrants or other instruments, the Depositary shall, on behalf of such Holder,
exercise the rights and purchase the Shares, and the Company shall cause the
Shares so purchased to be delivered to the Depositary or the Custodian on behalf
of such Holder. As agent for such Holder, the Depositary will cause the Shares
so purchased to be deposited pursuant to Section 2.02 of this Deposit Agreement,
and shall, pursuant to Section 2.03 of this Deposit Agreement, execute and
deliver Receipts to such Holder. In the case of a distribution pursuant to the
second paragraph of this section, such Receipts shall be legended in accordance
with applicable laws, and shall be subject to the appropriate restrictions on
sale, deposit, cancellation, and transfer under such laws.

          If the Depositary determines in its discretion that it is not lawful
and feasible to make such rights available to all or certain Holders, it may
sell the rights, warrants or other instruments in proportion to the number of
American Depositary Shares held by the Holders to whom it has determined it may
not lawfully or feasibly make such rights available, and allocate the net
proceeds of such sales (net of the fees and expenses of the Depositary as
provided in Section 5.09 and all taxes and governmental charges payable in
connection with such rights and subject to the terms and conditions of this
Deposit Agreement) for the account of such Holders otherwise entitled to such
rights, warrants or other instruments, upon an averaged or other practical basis
without regard to any distinctions among such Holders because of exchange
restrictions or the date of delivery of any Receipt, Receipts or otherwise.

                                                                              18

          The Depositary will not offer rights to Holders unless both the rights
and the securities to which such rights relate are either exempt from
registration under the Securities Act of 1933 with respect to a distribution to
Holders or are registered under the provisions of such Act; provided, that
nothing in this Deposit Agreement shall create, or be construed to create, any
obligation on the part of the Company to file a registration statement with
respect to such rights or underlying securities or to endeavor to have such a
registration statement declared effective. If a Holder of Receipts requests the
distribution of warrants or other instruments, notwithstanding that there has
been no such registration under such Act, the Depositary shall not effect such
distribution unless it has received an opinion from recognized counsel in the
United States to the Company upon which the Depositary may rely that such
distribution to such Holder is exempt from such registration.

          The Depositary shall not be responsible for any determination or
failure to determine that it may be lawful or feasible to make such rights
available to Holders in general or any Holder in particular.


     SECTION 4.05 Conversion of Foreign Currency.

          Whenever the Depositary or the Custodian shall receive foreign
currency, by way of dividends or other distributions or the net proceeds from
the sale of securities, property or rights, and if at the time of the receipt
thereof the foreign currency so received can in the judgment of the Depositary
be converted on a reasonable basis into Dollars and the resulting Dollars
transferred to the United States, the Depositary shall convert or cause to be
converted, by sale or in any other manner that it may determine, such foreign
currency into Dollars, and such Dollars shall be distributed to the Holders
entitled thereto or, if the Depositary shall have distributed any warrants or
other instruments which entitle the holders thereof to such Dollars, then to the
holders of such warrants and/or instruments upon surrender thereof for
cancellation. Such distribution may be made upon an averaged or other
practicable basis without regard to any distinctions among Holders on account of
exchange restrictions, the date of delivery of any Receipt or otherwise and
shall be net of any expenses of conversion into Dollars incurred by the
Depositary as provided in Section 5.09.

          If such conversion or distribution can be effected only with the
approval or license of any government or agency thereof, the Depositary shall
file such application for approval or license, if any, as it may deem desirable.

          If at any time the Depositary shall determine that in its judgment any
foreign currency received by the Depositary or the Custodian is not convertible
on a reasonable basis into Dollars transferable to the United States, or if any
approval or license of any government or agency thereof which is required for
such conversion is denied or in the opinion of the Depositary is not obtainable,
or if any such approval or license is not obtained within a reasonable period as
determined by the Depositary, the Depositary may distribute the foreign currency
(or an appropriate document evidencing

                                                                              19

the right to receive such foreign currency) received by the Depositary or the
Custodian to, or in its discretion may hold such foreign currency uninvested and
without liability for interest thereon for the respective accounts of, the
Holders entitled to receive the same.

          If any such conversion of foreign currency, in whole or in part,
cannot be effected for distribution to some of the Holders entitled thereto, the
Depositary may in its discretion make such conversion and distribution in
Dollars to the extent permissible to the Holders entitled thereto and may
distribute the balance of the foreign currency received by the Depositary to, or
hold such balance uninvested and without liability for interest thereon for the
respective accounts of, the Holders entitled thereto.


     SECTION 4.06 Fixing of Record Date.

          Whenever any cash dividend or other cash distribution shall become
payable or any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Deposited Securities, or whenever the
Depositary shall receive notice of any meeting of holders of Shares or other
Deposited Securities, or whenever for any reason the Depositary causes a change
in the number of Shares that are represented by each American Depositary Share,
or whenever the Depositary shall find it necessary or convenient, the Depositary
shall fix a record date (a) for the determination of the Holders who shall be
(i) entitled to receive such dividend, distribution or rights or the net
proceeds of the sale thereof or (ii) entitled to give instructions for the
exercise of voting rights at any such meeting, (b) on or after which each
American Depositary Share will represent the changed number of Shares or (c) for
such other persons as the Depositary finds necessary or convenient, which date
shall be the same date or as near as practicable to the corresponding record
date fixed by the Company. Subject to the provisions of Sections 4.01 through
4.05 and to the other terms and conditions of this Deposit Agreement, the
Holders on such record date shall be entitled, as the case may be, to receive
the amount distributable by the Depositary with respect to such dividend or
other distribution or such rights or the net proceeds of sale thereof in
proportion to the number of American Depositary Shares held by them respectively
and to give voting instructions and to act in respect of any other such matter.
The Depositary shall notify the applicable U.S. exchange of any action to fix a
record date for the ADSs in the customary manner.


     SECTION 4.07 Voting of Deposited Securities.

          The Holders hereby appoint the Depositary as their representative to
exercise voting rights with respect to the Shares represented by the ADSs in the
following manner. The Company agrees to provide the Depositary no later than the
business day (the "Cutoff Date") that is at least 24 calendar days prior to any
meeting of shareholders (such period covering the date of dispatch of such
notice and the date of the meeting of shareholders) with sufficient copies of
the annual report or any other relevant report as the Depositary may reasonably
request. Upon the written request of the Company, the Depositary will, at the
sole cost and expense of the Company, duplicate for distribution a sufficient
amount of documents specified by the Company to be duplicated and

                                                                              20

distributed, including a copy of notices of meetings of the shareholders of the
Company and the agenda therefor and any voting instruction forms, as well as
English translations thereof (containing an indication of the number of
directors or supervisors to be elected in the case of an election of directors
or supervisors), by which each Holder may give instructions to the Depositary to
vote (i) for or against each resolution specified in the agenda for the meeting
and (ii) on a cumulative basis, for the persons designated by such Holder as
directors and supervisors (the "Materials"). Upon receipt of the Materials, the
Depositary shall, as soon as practicable thereafter, fix a record date for
determining the Holders entitled to receive information as to such meeting as
provided in Section 4.06 and shall mail the Materials to such Holders. If the
Company fails to supply the Materials to the Depositary by the Cutoff Date, the
Depositary shall be under no obligation to mail the Materials to Holders and,
subject to the provisions described below, will cause all Deposited Securities
represented by the ADRs to be present at the relevant meeting of shareholders
insofar as practicable and permitted under applicable law but will not vote or
notify any voting instructions relating to any such Deposited Securities. In
order for voting instructions with respect to an ADS to be valid, the
instructions must be completed and duly signed by the Holder of such ADS on the
record date established by the Depositary and returned to the Depositary by such
date. The Depositary shall exercise voting rights with respect to the ADS only
in accordance with valid voting instructions.

          Subject to the provisions described in the following paragraph, which
will apply to the election of directors and supervisors, if a Holder or Holders
together holding at least 51% of the ADSs outstanding at the relevant record
date instruct the Depositary to vote in the same manner in respect of one or
more resolutions to be proposed at the meeting (other than the election of
directors or supervisors), the Depositary shall notify the instructions to the
Designated Representative (as defined below in this Section 4.7) or such other
person as he may designate (the "Substitute") and appoint the Designated
Representative or the Substitute as the representative of the Depositary and
Holders to attend such meeting and vote all the Deposited Securities represented
by ADSs in the manner so instructed by such Holders in relation to such
resolution or resolutions. If, for any reason, the Depositary has not by the
date specified by it received instructions from a Holder or Holders together
holding at least 51% of all the ADSs outstanding at the relevant record date to
vote in the same manner in respect of any resolution (other than the election of
directors or supervisors), then such Holders will be deemed to have instructed
the Depositary to authorize and appoint the Designated Representative or the
Substitute as the representative of the Depositary and the Holders to attend
such meeting and vote, at his sole discretion, all the Deposited Securities
represented by all ADSs, which may not be in the interest of the Holders;
provided, however, that no such authorization shall be given with respect to any
matter as to which the Designated Representative informs the Depositary that he
does not wish to be so authorized, in which event the Depositary will not vote
at the relevant meeting but will take such action as is necessary to cause all
the Deposited Securities to be counted for the purpose of satisfying applicable
quorum requirements.

                                                                              21

          The Depositary will notify the Designated Representative or the
Substitute of the instructions for the election of directors and supervisors
received from Holders and appoint the Designated Representative or the
Substitute as the representative of the Depositary and the Holders to attend
such meeting and, subject to the provisions described in this paragraph, vote
the Deposited Securities represented by ADSs as to which the Depositary has
received instructions from Holders for the election of directors and supervisors
in the manner so instructed, subject to any restrictions imposed by R.O.C. law,
rule or regulation or the Articles of Incorporation of the Company. Holders who
by the date specified by the Depositary have not delivered instructions to the
Depositary will be deemed to have instructed the Depositary to authorize the
Designated Representative or the Substitute as the representative of the
Depositary and the Holders to attend such meeting and vote, at his sole
discretion, all the Deposited Securities represented by ADSs as to which the
Depositary has not received instructions from the Holders for the election of
directors and supervisors, which may not be in the interest of the Holders;
provided, however, that no such authorization shall be given with respect to any
election of directors or supervisors as to which the Designated Representative
informs the Depositary that he does not wish to be so authorized, in which event
the Depositary will attend such meeting and will vote those Deposited Securities
represented by the ADSs as to which it has received instructions from Holders
for the election of directors and supervisors in the manner so instructed;
provided further, that the Depositary will not vote at the relevant meeting any
Deposited Securities represented by ADSs, as to which the Depositary has not
received instructions from the Holders for the election of directors and
supervisors but will take such action as is necessary to cause all the Deposited
Securities to be counted for the purpose of satisfying applicable quorum
requirements.

          By continuing to hold ADRs, all Holders will be deemed to have agreed
to these voting provisions, as they may be amended from time to time.

          The Depositary will not, and the Depositary will endeavor to ensure
that the Custodian and their respective nominees (including the Designated
Representative) do not (except as described above), exercise any discretion as
to voting, nor vote or attempt to exercise the right to vote that attaches to
the Deposited Securities, other than in accordance with instructions received as
herein provided.

          "Designated Representative" means the person who is Chairman of the
Company from time to time.

          Beneficial Owners are entitled to exercise their voting rights only
through the procedures applicable to the respective Holders of the ADRs in which
they have a beneficial interest.

                                                                              22

     SECTION 4.08 Changes Affecting Deposited Securities.

          In circumstances where the provisions of Section 4.03 do not apply,
upon any change in nominal value, change in par value, split-up, consolidation
or any other reclassification of Deposited Securities, or upon any
recapitalization, reorganization, merger or consolidation or sale of assets
affecting the Company or to which it is a party, and upon the Depositary having
obtained specific regulatory approval, if necessary, for the issuance of
additional ADSs from the appropriate governmental entity in the R.O.C., any
securities which shall be received by the Depositary or a Custodian in exchange
for, in conversion of or in respect of Deposited Securities, shall be treated as
new Deposited Securities under this Deposit Agreement, and American Depositary
Shares shall thenceforth represent, in addition to the existing Deposited
Securities, the right to receive the new Deposited Securities so received in
exchange or conversion, unless additional Receipts are delivered pursuant to the
following sentence. In any such case the Depositary may, and shall if the
Company shall so request, execute and deliver additional Receipts as in the case
of a distribution in Shares, or call for the surrender of outstanding Receipts
to be exchanged for new Receipts specifically describing such new Deposited
Securities.


     SECTION 4.09 Reports.

          The Depositary shall make available for inspection by Holders at its
Corporate Trust Office any reports and communications, including any proxy
soliciting material, received from the Company which are both (a) received by
the Depositary as the holder of the Deposited Securities and (b) made generally
available to the holders of such Deposited Securities by the Company. The
Depositary shall also, upon written request, send to the Holders copies of such
reports furnished by the Company pursuant to Section 5.06. Any such reports and
communications, including any such proxy soliciting material, furnished to the
Depositary by the Company shall be furnished in English, to the extent such
materials are required to be translated into English pursuant to any regulations
of the Commission or any stock exchange on which the American Depositary Shares
are listed.


     SECTION 4.10 Lists of Holders.

          Promptly upon request by the Company to the Depositary, the Depositary
shall furnish to the Company a list of the names, addresses and holdings of
American Depositary Shares by all persons in whose names Receipts are registered
on the books of the Depositary. No more than four such lists per annum shall be
provided by the Depositary to the Company at no cost to the Company. Any such
additional lists shall be provided by the Depositary to the Company at the
expense of the Company.

                                                                              23

     SECTION 4.11 Withholding.

          In the event that the Depositary determines that any distribution in
property (including Shares and rights to subscribe therefor) is subject to any
tax or other governmental charge which the Depositary is obligated to withhold,
the Depositary may by public or private sale dispose of all or a portion of such
property (including Shares and rights to subscribe therefor) in such amounts and
in such manner as the Depositary deems necessary and practicable to pay such
taxes or charges and the Depositary shall distribute the net proceeds of any
such sale after deduction of such taxes or charges to the Holders entitled
thereto in proportion to the number of American Depositary Shares held by them
respectively.


ARTICLE 5. THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY

     SECTION 5.01 Maintenance of Office and Transfer Books by the Depositary.

          Until termination of this Deposit Agreement in accordance with its
terms, the Depositary shall maintain in the Borough of Manhattan, The City of
New York, facilities for the execution and delivery, registration, registration
of transfers and surrender of Receipts in accordance with the provisions of this
Deposit Agreement.

          The Depositary shall keep books, at its Corporate Trust Office, for
the registration of Receipts and transfers of Receipts which shall at all
reasonable times be open for inspection by the Holders, provided that such
inspection shall not be for the purpose of communicating with Holders in the
interest of a business or object other than the business of the Company or a
matter related to this Deposit Agreement or the Receipts. The Depositary agrees
that it will not otherwise disclose any information set forth in such records
except as requested or authorized in writing by the Company or as required by
law.

          The Depositary may close the transfer books, at any time or from time
to time, when deemed expedient by it in connection with the performance of its
duties hereunder.

          If any Receipts or the American Depositary Shares evidenced thereby
are listed on one or more stock exchanges in the United States, the Depositary
shall act as Registrar or appoint a Registrar or one or more co-registrars for
registry of such Receipts in accordance with any requirements of such exchange
or exchanges.

                                                                              24

     SECTION 5.02 Prevention or Delay in Performance by the Depositary or the
Company.

          Neither the Depositary nor the Company nor any of their respective
directors, employees, agents or affiliates shall incur any liability to any
Holder or Beneficial Owner of any Receipt, if by reason of any provision of any
present or future law or regulation of the United States, the R.O.C. or any
other jurisdiction, or of any governmental or regulatory authority or stock
exchange, or by reason of any provision, present or future, of the Articles of
Incorporation of the Company, or by reason of any provision of any securities
issued or distributed by the Company, or any offering or distribution thereof,
or by reason of any act of God or war or terrorism or other circumstances beyond
its control, the Depositary or the Company shall be prevented, delayed or
forbidden from, or be subject to any civil or criminal penalty on account of,
doing or performing any act or thing which by the terms of this Deposit
Agreement it is provided shall be done or performed; nor shall the Depositary or
the Company or any of their respective directors, employees, agents or
affiliates incur any liability to any Holder or Beneficial Owner of any Receipt
by reason of any nonperformance or delay, caused as aforesaid, in the
performance of any act or thing which by the terms of this Deposit Agreement it
is provided shall or may be done or performed, or by reason of any exercise of,
or failure to exercise, any discretion provided for in this Deposit Agreement.
Where, by the terms of a distribution pursuant to Section 4.01, 4.02, or 4.03 of
the Deposit Agreement, or an offering or distribution pursuant to Section 4.04
of the Deposit Agreement, or for any other reason, such distribution or offering
may not be made available to Holders, and the Depositary may not dispose of such
distribution or offering on behalf of such Holders and make the net proceeds
available to such Holders, then the Depositary shall not make such distribution
or offering, and shall allow any rights, if applicable, to lapse.


     SECTION 5.03 Obligations of the Depositary, the Custodian and the Company.

          The Company assumes no obligation nor shall it be subject to any
liability under this Deposit Agreement to Holders or Beneficial Owners, except
that it agrees to perform its obligations specifically set forth in this Deposit
Agreement without negligence or bad faith.

          The Depositary assumes no obligation nor shall it be subject to any
liability under this Deposit Agreement to any Holder or Beneficial Owner
(including, without limitation, liability with respect to the validity or worth
of the Deposited Securities), except that it agrees to perform its obligations
specifically set forth in this Deposit Agreement without negligence or bad
faith.

          Neither the Depositary nor the Company shall be under any obligation
to appear in, prosecute or defend any action, suit or other proceeding in
respect of any Deposited Securities or in respect of the Receipts, which in its
opinion may involve it in

                                                                              25

expense or liability, unless indemnity satisfactory to it against all expense
and liability shall be furnished as often as may be required, and the Custodian
shall not be under any obligation whatsoever with respect to such proceedings,
the responsibility of the Custodian being solely to the Depositary.

          Neither the Depositary nor the Company shall be liable for any action
or nonaction by it in reliance upon the advice of or information from legal
counsel, accountants, any person presenting Shares for deposit, any Holder or
any other person believed by it in good faith to be competent to give such
advice or information.

          The Depositary shall not be liable for any acts or omissions made by a
successor depositary whether in connection with a previous act or omission of
the Depositary or in connection with any matter arising wholly after the removal
or resignation of the Depositary, provided that in connection with the issue out
of which such potential liability arises the Depositary performed its
obligations without negligence or bad faith while it acted as Depositary.

          Neither the Depositary nor the Company shall be responsible for any
failure to carry out any instructions to vote any of the Deposited Securities,
or for the manner in which any such vote is cast or the effect of any such vote,
provided that any such action or nonaction is in good faith.

          No disclaimer of liability under the Securities Act of 1933 is
intended by any provision of this Deposit Agreement.


     SECTION 5.04 Resignation and Removal of the Depositary.

          The Depositary may at any time resign as Depositary hereunder by
written notice of its election to do so delivered to the Company, such
resignation to take effect upon the appointment by the Company of a successor
depositary and its acceptance of such appointment as hereinafter provided.

          The Depositary may at any time be removed by the Company by 120 days
prior written notice of such removal, to become effective upon the later of (i)
the 120th day after delivery of the notice to the Depositary or (ii) appointment
by the Company of a successor depositary and its acceptance of such appointment
as hereinafter provided.

          In case at any time the Depositary acting hereunder shall resign or be
removed, the Company shall use its best efforts to appoint a successor
depositary, which shall be a bank or trust company having an office in the
Borough of Manhattan, The City of New York. Every successor depositary shall
execute and deliver to its predecessor and to the Company an instrument in
writing accepting its appointment hereunder, and thereupon such successor
depositary, without any further act or deed, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor; but such
predecessor, nevertheless, upon payment of all sums due it and on the written
request of

                                                                              26

the Company shall execute and deliver an instrument transferring to such
successor all rights and powers of such predecessor hereunder, shall duly
assign, transfer and deliver all right, title and interest in the Deposited
Securities to such successor, and shall deliver to such successor a list of the
Holders of all outstanding Receipts. Any such successor depositary shall
promptly mail notice of its appointment to the Holders.

          Any corporation into or with which the Depositary may be merged or
consolidated shall be the successor of the Depositary without the execution or
filing of any document or any further act.


     SECTION 5.05 The Custodians.

          The Custodian shall be subject at all times and in all respects to the
directions of the Depositary and shall be responsible solely to it. Any
Custodian may resign and be discharged from its duties hereunder by notice of
such resignation delivered to the Depositary at least 30 days prior to the date
on which such resignation is to become effective. If upon such resignation there
shall be no Custodian acting hereunder, the Depositary shall, promptly after
receiving such notice, subject to the prior written consent of the Company
(which consent shall not be unreasonably withheld or delayed), appoint a
substitute custodian or custodians, each of which shall thereafter be a
Custodian hereunder. Whenever the Depositary in its discretion determines that
it is in the best interest of the Holders to do so, it may, subject to the prior
written consent of the Company (which consent shall not be unreasonably withheld
or delayed), appoint a substitute or additional custodian or custodians, each of
which shall thereafter be one of the Custodians hereunder. Upon demand of the
Depositary any Custodian shall deliver such of the Deposited Securities held by
it as are requested of it to any other Custodian or such substitute or
additional custodian or custodians. Each such substitute or additional custodian
shall deliver to the Depositary, forthwith upon its appointment, an acceptance
of such appointment satisfactory in form and substance to the Depositary.

          Upon the appointment of any successor depositary hereunder, each
Custodian then acting hereunder shall forthwith become, without any further act
or writing, the agent hereunder of such successor depositary and the appointment
of such successor depositary shall in no way impair the authority of each
Custodian hereunder; but the successor depositary so appointed shall,
nevertheless, on the written request of any Custodian, execute and deliver to
such Custodian all such instruments as may be proper to give to such Custodian
full and complete power and authority as agent hereunder of such successor
depositary.


     SECTION 5.06 Notices and Reports.

          On or before the first date on which the Company gives notice, by
publication or otherwise, of any meeting of holders of Shares or other Deposited
Securities, or of any adjourned meeting of such holders, or of the taking of any
action in respect of any cash or other distributions or the offering of any
rights, the Company

                                                                              27

agrees to transmit to the Depositary and the Custodian a copy of the notice
thereof in the form given or to be given to holders of Shares or other Deposited
Securities.

          The Company will arrange for the translation into English and the
prompt transmittal by the Company to the Depositary and the Custodian of such
notices and any other reports and communications which are made generally
available by the Company to holders of its Shares. If requested in writing by
the Company, the Depositary will arrange for the mailing of copies of such
notices, reports and communications to all Holders. The Company will timely
provide the Depositary with such notices, reports, and communications, as
requested by the Depositary from time to time, in order for the Depositary to
effect such mailings.


     SECTION 5.07 Distribution of Additional Shares, Rights, etc.

          The Company agrees that in the event of any issuance or distribution
of (1) additional Shares, (2) rights to subscribe for Shares, (3) securities
convertible into Shares, or (4) rights to subscribe for such securities (each a
"Distribution"), the Company will promptly furnish to the Depositary a written
opinion from recognized counsel in the United States to the Company stating
whether or not the Distribution requires a Registration Statement under the
Securities Act of 1933 to be in effect prior to making such Distribution
available to Holders entitled thereto. If in the opinion of such counsel a
registration statement under the Securities Act of 1933 is required, such
counsel shall furnish to the Depositary a written opinion as to whether or not
there is a registration statement in effect which will cover such Distribution.

          The Company agrees with the Depositary that neither the Company nor
any of its affiliates (as such term is defined in Rule 144 under the Securities
Act of 1933) will at any time deposit any Shares, either originally issued or
previously issued and reacquired by the Company or any such affiliate, unless
such Shares or proposed transactions are exempt from registration under the
Securities Act of 1933 or unless a registration statement is in effect as to
such Shares under the Securities Act of 1933.

          Notwithstanding anything else contained in this Deposit Agreement,
nothing in this Deposit Agreement shall be deemed to obligate the Company to
file any registration statement in respect of any proposed transaction.


     SECTION 5.08 Indemnification.

          The Company agrees to indemnify the Depositary, its directors,
employees, agents and affiliates and any Custodian against, and hold each of
them harmless from, any liability or expense (including, but not limited to, the
reasonable fees and expenses of counsel) which may arise out of any registration
with the Commission of Receipts, American Depositary Shares or Deposited
Securities or the offer or sale thereof in the United States or out of acts
performed or omitted, in accordance with the provisions of this Deposit
Agreement and of the Receipts, as the same may be amended,

                                                                              28

modified or supplemented from time to time, (i) by either the Depositary or a
Custodian or their respective directors, employees, agents and affiliates,
except for any liability or expense arising out of the negligence or bad faith
of either of them, or (ii) by the Company or any of its directors, employees,
agents and affiliates.

          The indemnities contained in the preceding paragraph shall not extend
to any liability or expense which arises solely and exclusively out of a
Pre-Release (as defined in Section 2.09) of a Receipt or Receipts in accordance
with Section 2.09 and which would not otherwise have arisen had such Receipt or
Receipts not been the subject of a Pre-Release pursuant to Section 2.09;
provided, however, that the indemnities provided in the preceding paragraph
shall apply to any such liability or expense (i) to the extent that such
liability or expense would have arisen had a Receipt or Receipts not be the
subject of a Pre-Release, or (ii) which may arise out of any misstatement or
alleged misstatement or omission or alleged omission in any registration
statement, proxy statement, prospectus (or placement memorandum), or preliminary
prospectus (or preliminary placement memorandum) relating to the offer or sale
of American Depositary Shares, except to the extent any such liability or
expense arises out of (i) information relating to the Depositary or any
Custodian (other than the Company), as applicable, furnished in writing by the
Depositary or any Custodian and not materially changed or altered by the Company
expressly for use in any of the foregoing documents, or, (ii) if such
information is provided, the failure to state a material fact necessary to make
the information provided not misleading.

          The Depositary agrees to indemnify the Company, its directors,
employees, agents and affiliates and hold them harmless from any liability or
expense (including, but not limited to, the reasonable fees and expenses of
counsel) which may arise out of acts performed or omitted by the Depositary or
its Custodian or their respective directors, employees, agents and affiliates
due to their negligence or bad faith.


     SECTION 5.09 Charges of Depositary.

          The Company agrees to pay the fees, reasonable expenses and out-of-
pocket charges of the Depositary and those of any Registrar only in accordance
with agreements in writing entered into between the Depositary and the Company
from time to time. The Depositary shall present its statement for such charges
and expenses to the Company once every three months. The charges and expenses of
the Custodian are for the sole account of the Depositary.

          The following charges shall be incurred by any party depositing or
withdrawing Shares or by any party surrendering Receipts or to whom Receipts are
issued (including, without limitation, issuance pursuant to a stock dividend or
stock split declared by the Company or an exchange of stock regarding the
Receipts or Deposited Securities or a distribution of Receipts pursuant to
Section 4.03), or by Holders, as applicable: (1) taxes and other governmental
charges, (2) such registration fees as may from time to time be in effect for
the registration of transfers of Shares generally on the

                                                                              29

Share register of the Company or Foreign Registrar and applicable to transfers
of Shares to or from the name of the Depositary or its nominee or the Custodian
or its nominee on the making of deposits or withdrawals hereunder, (3) such
cable, telex and facsimile transmission expenses as are expressly provided in
this Deposit Agreement, (4) such expenses as are incurred by the Depositary in
the conversion of foreign currency pursuant to Section 4.05, (5) a fee of $5.00
or less per 100 American Depositary Shares (or portion thereof) for the
execution and delivery of Receipts pursuant to Section 2.03, 4.03 or 4.04 and
the surrender of Receipts pursuant to Section 2.05 or 6.02, (6) a fee of $.02 or
less per American Depositary Share (or portion thereof) for any cash
distribution made pursuant to the Deposit Agreement, including, but not limited
to Sections 4.01 through 4.04 hereof to the extent permitted by the rules of any
securities exchange on which the American Depositary Shares may be listed for
trading, (7) a fee for the distribution of securities pursuant to Section 4.02,
such fee being in an amount equal to the fee for the execution and delivery of
American Depositary Shares referred to above which would have been charged as a
result of the deposit of such securities (for purposes of this clause 7 treating
all such securities as if they were Shares) but which securities are instead
distributed by the Depositary to Holders and (8) any other charge payable by the
Depositary, any of the Depositary's agents, including the Custodian, or the
agents of the Depositary's agents in connection with the servicing of Shares or
other Deposited Securities (which charge shall be assessed against Holders as of
the date or dates set by the Depositary in accordance with Section 4.06 and
shall be payable at the sole discretion of the Depositary by billing such
Holders for such charge or by deducting such charge from one or more cash
dividends or other cash distributions).

          The Depositary, subject to Section 2.09 hereof, may own and deal in
any class of securities of the Company and its affiliates and in Receipts.


     SECTION 5.10 Retention of Depositary Documents.

          The Depositary is authorized to destroy those documents, records,
bills and other data compiled during the term of this Deposit Agreement at the
times permitted by the laws or regulations governing the Depositary unless the
Company requests that such papers be retained for a longer period or turned over
to the Company or to a successor depositary.


     SECTION 5.11 Exclusivity.

          The Company agrees not to appoint any other Depositary for the
issuance of American Depositary Receipts so long as The Bank of New York is
acting as Depositary hereunder.


     SECTION 5.12 List of Restricted Securities Holders.

          From time to time, the Company shall provide to the Depositary a list
setting forth, to the actual knowledge of the Company, those persons or entities
who

                                                                              30

beneficially own Restricted Securities and the Company shall update that list on
a regular basis. The Company agrees to advise in writing each of the persons or
entities so listed that such Restricted Securities are ineligible for deposit
hereunder. The Depositary may rely on such a list or update but shall not be
liable for any action or omission made in reliance thereon.


ARTICLE 6. AMENDMENT AND TERMINATION

     SECTION 6.01 Amendment.

          The form of the Receipts and any provisions of this Deposit Agreement
may at any time and from time to time be amended by agreement between the
Company and the Depositary without the consent of Holders or Beneficial Owners
of Receipts in any respect which they may deem necessary or desirable. Any
amendment which shall impose or increase any fees or charges (other than taxes
and other governmental charges, registration fees, cable, telex or facsimile
transmission costs, delivery costs or other such expenses), or which shall
otherwise prejudice any substantial existing right of Holders, shall, however,
not become effective as to outstanding Receipts until the expiration of 30 days
after notice of such amendment shall have been given to the Holders of
outstanding Receipts. Every Holder at the time any amendment so becomes
effective, shall be deemed, by continuing to hold such Receipt, to consent and
agree to such amendment and to be bound by the Deposit Agreement as amended
thereby. In no event shall any amendment impair the right of the Holder of any
Receipt to surrender such Receipt and receive therefor the Deposited Securities
represented thereby, except in order to comply with mandatory provisions of
applicable law.


     SECTION 6.02 Termination.

          The Depositary shall, at any time at the direction of the Company,
terminate this Deposit Agreement by mailing notice of such termination to the
Holders of all Receipts then outstanding at least 30 days prior to the date
fixed in such notice for such termination. The Depositary may likewise terminate
this Deposit Agreement by mailing notice of such termination to the Company and
the Holders of all Receipts then outstanding, if at any time 180 days shall have
expired after the Depositary shall have delivered to the Company a written
notice of its election to resign and a successor depositary shall not have been
appointed and accepted its appointment as provided in Section 5.04; provided,
however, that in the event the Depositary has resigned and a successor
depositary shall not have been appointed prior to the expiration of such 180 day
period, the Depositary shall have the right to terminate this Deposit Agreement
forthwith by mailing such notice in the event it becomes unlawful for The Bank
of New York to continue to act as Depositary hereunder.

          To the extent non-R.O.C. persons who are Holders of ADRs are permitted
to withdraw the Shares underlying the ADSs evidenced thereby under applicable
law at

                                                                              31

the time of the termination of this Agreement, the following paragraph shall
apply to all Holders who may so withdraw such Shares.

          On and after the date of termination, the Holder of a Receipt will,
upon (a) surrender of such Receipt at the Corporate Trust Office of the
Depositary, (b) payment of the fee of the Depositary for the surrender of
Receipts referred to in Section 2.05, and (c) payment of any applicable taxes or
governmental charges, be entitled to delivery, to him or upon his order, of the
amount of Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt. If any Receipts shall remain outstanding after the
date of termination, the Depositary thereafter shall discontinue the
registration of transfers of Receipts, shall suspend the distribution of
dividends to the Holders thereof, and shall not give any further notices or
perform any further acts under this Deposit Agreement, except that the
Depositary shall continue to collect dividends and other distributions
pertaining to Deposited Securities, shall sell rights and other property as
provided in this Deposit Agreement, and shall continue to deliver Deposited
Securities, together with any dividends or other distributions received with
respect thereto and the net proceeds of the sale of any rights or other
property, in exchange for Receipts surrendered to the Depositary (after
deducting, in each case, the fee of the Depositary for the surrender of a
Receipt, any expenses for the account of the Holder of such Receipt in
accordance with the terms and conditions of this Deposit Agreement, and any
applicable taxes or governmental charges).

          To the extent non-R.O.C. persons who are Holders of ADRs are not
permitted to withdraw the Shares underlying the ADSs evidenced thereby under
applicable law at the time of the termination of this Agreement, the following
paragraph shall apply to all Holders who may not so withdraw such Shares.

          If any Receipts shall remain outstanding after the date of
termination, the Depositary thereafter shall discontinue the registration of
transfers of Receipts, shall suspend the distribution of dividends to the
Holders thereof, and shall not give any further notices or perform any further
acts under this Deposit Agreement, except that the Depositary shall continue to
collect dividends and other distributions pertaining to Deposited Securities,
shall sell rights, Shares and other property as provided in this Deposit
Agreement, and shall continue to deliver the net proceeds of the sale of any
rights, Shares or other property, in exchange for Receipts surrendered to the
Depositary (after deducting, in each case, the fee of the Depositary for the
surrender of a Receipt, any expenses for the account of the Holder of such
Receipt in accordance with the terms and conditions of this Deposit Agreement,
and any applicable taxes or governmental charges).

          At any time after the expiration of one (1) year from the date of
termination, the Depositary may sell the Deposited Securities then held
hereunder and may thereafter hold uninvested the net proceeds of any such sale,
together with any other cash then held by it hereunder, unsegregated and without
liability for interest, for the pro

                                                                              32

rata benefit of the Holders of Receipts which have not theretofore been
surrendered, such Holders thereupon becoming general creditors of the Depositary
with respect to such net proceeds. After making such sale, the Depositary shall
be discharged from all obligations under this Deposit Agreement, except to
account for such net proceeds and other cash (after deducting, in each case, the
fee of the Depositary for the surrender of a Receipt, any expenses for the
account of the Holder of such Receipt in accordance with the terms and
conditions of this Deposit Agreement, and any applicable taxes or governmental
charges). Upon the termination of this Deposit Agreement, the Company shall be
discharged from all obligations under this Deposit Agreement except for its
obligations to the Depositary under Sections 5.08 and 5.09 hereof.


ARTICLE 7. MISCELLANEOUS

     SECTION 7.01 Counterparts.

          This Deposit Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of such counterparts shall
constitute one and the same instrument. Copies of this Deposit Agreement shall
be filed with the Depositary and the Custodians and shall be open to inspection
by any Holder or Beneficial Owner of a Receipt during business hours.


     SECTION 7.02 No Third Party Beneficiaries.

          This Deposit Agreement is for the exclusive benefit of the parties
hereto and shall not be deemed to give any legal or equitable right, remedy or
claim whatsoever to any other person.


     SECTION 7.03 Severability.

          In case any one or more of the provisions contained in this Deposit
Agreement or in the Receipts should be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall in no way be affected,
prejudiced or disturbed thereby.


     SECTION 7.04 Holders and Beneficial Owners as Parties; Binding Effect.

          The Holders and Beneficial Owners of Receipts from time to time shall
be parties to this Deposit Agreement and shall be bound by all of the terms and
conditions hereof and of the Receipts by acceptance thereof.


     SECTION 7.05 Notices.

          Any and all notices to be given to the Company shall be deemed to have
been duly given if personally delivered or sent by mail or cable, telex or
facsimile transmission confirmed by letter, addressed to Chunghwa Telecom Co.,
Ltd., 21-3 Hsinyi

                                                                              33

Road, Section 1, Taipei, Taiwan, R.O.C., Attention: Mr. Hank Wang, Room 109,
Facsimile: 886-2-2344-4581, or any other place to which the Company may have
transferred its principal office.

          Any and all notices to be given to the Depositary shall be deemed to
have been duly given if in English and personally delivered or sent by mail or
cable, telex or facsimile transmission confirmed by letter, addressed to The
Bank of New York, 101 Barclay Street, New York, New York 10286, Attention:
American Depositary Receipt Administration, or any other place to which the
Depositary may have transferred its Corporate Trust Office.

          Any and all notices to be given to any Holder shall be deemed to have
been duly given if personally delivered or sent by mail or cable, telex or
facsimile transmission confirmed by letter, addressed to such Holder at the
address of such Holder as it appears on the transfer books for Receipts of the
Depositary, or, if such Holder shall have filed with the Depositary a written
request that notices intended for such Holder be mailed to some other address,
at the address designated in such request.

          Delivery of a notice sent by mail or cable, telex or facsimile
transmission shall be deemed to be effective at the time when a duly addressed
letter containing the same (or a confirmation thereof in the case of a cable,
telex or facsimile transmission) is deposited, postage prepaid, in a post-office
letter box. The Depositary or the Company may, however, act upon any cable,
telex or facsimile transmission received by it, notwithstanding that such cable,
telex or facsimile transmission shall not subsequently be confirmed by letter as
aforesaid.


     SECTION 7.06 Governing Law.

          This Deposit Agreement and the Receipts shall be interpreted and all
rights hereunder and thereunder and provisions hereof and thereof shall be
governed by the laws of the State of New York.


     SECTION 7.07 Submission to Jurisdiction; Appointment of Agent for Service
of Process.

          The Company hereby (i) irrevocably designates and appoints CT
Corporation, 111 8th Avenue, New York, New York 10011, in the State of New York,
as the Company's authorized agent upon which process may be served in any suit
or proceeding arising out of or relating to the Shares or Deposited Securities,
the American Depositary Shares, the Receipts or this Agreement, (ii) consents
and submits to the jurisdiction of any state or federal court in the State of
New York in which any such suit or proceeding may be instituted, and (iii)
agrees that service of process upon said authorized agent shall be deemed in
every respect effective service of process upon the Company in any such suit or
proceeding. The Depositary agrees to provide notice to the Company, in
accordance with Section 7.05 hereof, of any such service of process upon

                                                                              34

the authorized agent; provided, however, that any action or omission with
respect to such notice shall not in any way invalidate or other constitute a
waiver of such service of process. The Company agrees to deliver to the
Depositary, upon the execution and delivery of this Deposit Agreement, a written
acceptance by such agent of its appointment as such agent. The Company further
agrees to take any and all action, including the filing of any and all such
documents and instruments, as may be necessary to continue such designation and
appointment in full force and effect for so long as any American Depositary
Shares or Receipts remain outstanding or this Agreement remains in force. If for
any reason the authorized agent shall cease to be available to act as such, the
Company agrees to designate a new authorized agent in New York on the terms and
for the purposes of this Section 7.07 and deliver to the Depositary written
notice, in accordance with Section 7.05 hereof, of such new authorized agent,
which notice shall take effect upon the Depositary's receipt of such notice. In
the event the Company fails to continue such designation and appointment in full
force and effect, the Company hereby waives personal service of process upon it
and consents that any such service of process may be made by certified or
registered mail, return receipt requested, directed to the Company at its
address last specified for notices hereunder, and service so made shall be
deemed completed five (5) days after the same shall have been so mailed.


     SECTION 7.08 Arbitration; Settlement of Disputes.

          In the event the Depositary has is advised that a judgment of a United
States court may not be recognized or enforced in the R.O.C., the following
provisions shall apply:

          (i) Any controversy, claim or cause of action brought by any party or
parties hereto against any other party or parties hereto arising out of or
relating to the Deposit Agreement shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.

          (ii) The place of the arbitration shall be the City of New York, State
of New York, United States of America, and the language of the arbitration shall
be English.

          (iii) The number of arbitrators shall be three, each of whom shall be
disinterested in the dispute or controversy, shall have no connection with any
party thereto, and shall be an attorney experienced in international securities
transactions. Each party shall appoint one arbitrator and the two arbitrators
shall select a third arbitrator who shall serve as chairperson of the tribunal.
If a dispute, controversy or cause of action shall involve more than two
parties, the parties shall attempt to align themselves in two sides (i.e.,
claimant and respondent), each of which shall appoint one arbitrator as if there
were only two parties to such dispute, controversy or cause of action. If either
or both parties fail to select an arbitrator, or if such alignment (in the event
there is more than two parties) shall not have occurred, within sixty (60)
calendar days after the initiating party serves the arbitration demand or the
two arbitrators fail to select a third arbitrator within

                                                                              35

sixty (60) calendar days of the selection of the second arbitrator, the American
Arbitration Association shall appoint the arbitrator or arbitrators in
accordance with its rules. The parties and the American Arbitration Association
may appoint the arbitrators from among the nationals of any country, whether or
not a party is a national of that country.

          (iv) The arbitrators shall have no authority to award damages not
measured by the prevailing party's actual damages and shall have no authority to
award any consequential, special or punitive damages, and may not, in any event,
make any ruling, finding or award that does not conform to the terms and
conditions of the Deposit Agreement.

          (v) In the event any third-party action or proceeding is instituted
against the Depositary relating to or arising from any act or failure to act by
the Company, the Company hereby submits to the personal jurisdiction of the
court or administrative agency in which such action or proceeding is brought.


     SECTION 7.09 Compliance with U.S. Securities Laws.

          Notwithstanding anything in this Deposit Agreement to the contrary,
the Company and the Depositary each agrees that it will not exercise any rights
it has under this Deposit Agreement to permit the withdrawal or delivery of
Deposited Securities in a manner which would violate the U.S. securities laws,
including, but not limited to, Section I.A.(1) of the General Instructions to
the Registration Statement on Form F-6, as amended from time to time, under the
Securities Act of 1933.


     SECTION 7.10 Waiver of Immunities.

          To the extent that the Company or any of its properties, assets or
revenues may have or may hereafter become entitled to, or have attributed to it,
any right of immunity, on the grounds of sovereignty or otherwise, from any
legal action, suit or proceeding, from the giving of any relief in any respect
thereof, from setoff or counterclaim, from the jurisdiction of any court, from
service of process, from attachment upon or prior to judgment, from attachment
in aid of execution or judgment, or from execution of judgment, or other legal
process or proceeding for the giving of any relief or for the enforcement of any
judgment, in any jurisdiction in which proceedings may at any time be commenced,
with respect to its obligations, liabilities or any other matter under or
arising out of or in connection with the Shares or Deposited Securities, the
American Depositary Shares, the Receipts or this Deposit Agreement, the Company,
to the fullest extent permitted by law, hereby irrevocably and unconditionally
waives, and agrees not to plead or claim, any such immunity and consents to such
relief and enforcement.

                                                                              36

          IN WITNESS WHEREOF, CHUNGHWA TELECOM CO., LTD. and THE BANK OF NEW
YORK have duly executed this Deposit Agreement as of the day and year first set
forth above and all Holders and Beneficial Owners shall become parties hereto
upon acceptance by them of Receipts issued in accordance with the terms hereof.



                                            CHUNGHWA TELECOM CO., LTD.



                                            By:
                                               ---------------------------------



                                            THE BANK OF NEW YORK,
                                               as Depositary



                                            By:
                                               ---------------------------------

                                                                              37

EX-23.1

                                                                    EXHIBIT 23.1


                         INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 4 to Registration Statement No.
333-13074 of Chunghwa Telecom Co., Ltd. on Form F-1 of our report dated March
27, 2003, appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.



Deloitte & Touche

T N Soong & Co and Deloitte & Touche (Taiwan) established Deloitte & Touche
effective June 1, 2003

Taipei, Taiwan
The Republic of China

June 23, 2003