Hang Lung Group Limited - Proxy Solicitation & Information Statement 2008

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, or other registered institution in securities, a bank manager, solicitor, professional accountant, or other professional adviser.

If you have sold or transferred all your shares in PCCW Limited , you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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PCCW Limited 電訊盈科有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0008)

CONTINUING CONNECTED TRANSACTIONS WITH THE CHINA TELECOM GROUP RELATING TO THE (1) REVISION OF THE 2008 AND 2009 ANNUAL CAPS (2) SETTING OF THE NEW ANNUAL CAPS FOR 2010

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders of PCCW Limited

A letter from the board of directors of PCCW Limited is set out on pages 3 to 12 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders is set out on pages 13 to 14 of this circular. A letter from ING Bank N.V., the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders, is set out on pages 15 to 28 of this circular.

A notice convening an extraordinary general meeting (the “ EGM ”) of the Company to be held at 12:00 p.m. on 29 May 2008 (Thursday) in the Conference Room, 14th Floor, PCCW Tower, TaiKoo Place, 979 King’s Road, Quarry Bay, Hong Kong (or as soon thereafter as the annual general meeting of the Company convened for the same place and on the same date at 11:00 a.m. shall have been concluded or adjourned) is set out on pages 40 to 41 of this circular. A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend and vote at the EGM or any adjourned meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrars, Computershare Hong Kong Investor Services Limited, Investor Communications Centre, Rooms 1806-1807, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible, but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish.

9 May 2008

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	1
LETTER FROM THE BOARD
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	3
REVISED CAPS FOR EACH OF THE YEARS ENDING 31 DECEMBER 2008 AND 2009	. . . . .	4
NEW CAPS FOR THE YEAR ENDING 31 DECEMBER 2010 . . . . . . . . . . . . . . . . . . . .	. . . . .	5
COMPLIANCE WITH THE LISTING RULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	5
THE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	6
DESPATCH OF SHAREHOLDERS’ CIRCULAR AND APPOINTMENT OF INDEPENDENT
BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . .	. . . . .	8
REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS . . . . . . . . . . . . . .	. . . . .	9
WAIVER FROM STRICT COMPLIANCE WITH THE REQUIREMENTS OF RULE 14A.35(1) OF
THE LISTING RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	10
DESCRIPTION OF CONNECTED RELATIONSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	11
EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	12
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	12
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . .	. . . . .	13
LETTER FROM ING BANK N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	15
APPENDIX — GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	29
2. DISCLOSURE OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	29
3. DIRECTORS’ INTERESTS IN CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	35
4. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	35
5. COMPETING INTERESTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	36
6. MATERIAL ADVERSE CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	38
7. DOCUMENTS AVAILABLE FOR INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	38
8. PROCEDURE FOR DEMANDING A POLL . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	38
9. EXPERT AND CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	39
10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	39
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	40

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DEFINITIONS

In this circular, the following terms and expressions shall have the following meanings, unless otherwise defined or the context otherwise requires:

the announcement of the Company dated 23 April 2008;

“Announcement” the announcement “Board” board of Directors; “China Huaxin” China Huaxin

China Huaxin Post and Telecommunications Economy Development Centre, a company established under the laws of the PRC;

“Company” or “PCCW” PCCW Limited, a company incorporated in Hong Kong with limited liability and whose shares are listed on the Stock Exchange;

“CTC”

China Telecommunications Corporation, a state-owned enterprise established in the PRC;

“CTC Group” CTC and its subsidiaries and associates;

“Directors” directors of the Company;

“EGM”

the extraordinary general meeting of the Independent Shareholders to be convened by the Notice set out on pages 40 to 41 of this circular, at which a resolution will be proposed to, if thought fit, approve the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap), the New Caps and the Waiver;

the announcement of the Company dated 15 February 2007;

“February 2007 Announcement” the announcement of the Company dated 15 February 2007; “Group” the Company and its subsidiaries; “HK$” Hong Kong dollars, the lawful currency of Hong Kong; “Hong Kong” the Hong Kong Special Administrative Region of the PRC;

“Independent Board Committee”

the independent committee of the board of directors of the Company established by the Company as required by Rule 14A.21 of the Listing Rules, to consider the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps, and to opine as to whether the terms of those transactions are fair and reasonable and in the interests of the Company and its Shareholders as a whole, such independent board committee comprising the Independent Non-Executive Directors;

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DEFINITIONS

“Independent Non-Executive Professor Chang Hsin-kang, Dr The Hon Sir Li Kwok Po, Directors” David, GBM, GBS, OBE, JP , Sir Roger Lobo, CBE, LLD, JP , Aman Mehta and The Hon Raymond George Hardenbergh Seitz;
“Independent Shareholders” the Shareholders other than any members of the CTC Group which may have a material interest in the proposed transactions set out in the Notice;
“Latest Practicable Date” 5 May 2008, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein;
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;
“Notice” the notice of the EGM as set out on pages 40 to 41 of this circular;
“PRC” the People’s Republic of China, excluding Hong Kong, the Macao Special Administrative Region of the People’s Republic of China and Taiwan, for the purpose of this circular;
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);
“Shareholders” the shareholders of the Company; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Unihub” Unihub China Information Technology Company Limited, a 50/50 equity joint venture company established in the PRC; and
“%” per cent.

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LETTER FROM THE BOARD

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PCCW Limited 電訊盈科有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0008)

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

Registered Office: 39th Floor, PCCW Tower TaiKoo Place 979 King’s Road Quarry Bay Hong Kong

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

Independent Non-Executive Directors:

Professor Chang Hsin-kang Dr The Hon Sir Li Kwok Po, David, GBM, GBS, OBE, JP Sir Roger Lobo, CBE, LLD, JP Aman Mehta The Hon Raymond George Hardenbergh Seitz

9 May 2008

To: the Shareholders of PCCW

Dear Sir or Madam

CONTINUING CONNECTED TRANSACTIONS WITH THE CHINA TELECOM GROUP RELATING TO THE (1) REVISION OF THE 2008 AND 2009 ANNUAL CAPS (2) SETTING OF THE NEW ANNUAL CAPS FOR 2010

INTRODUCTION

References are made to the Announcement and the February 2007 Announcement which describe several categories of continuing connected transactions between the Group and the CTC Group relating to the provision of:

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LETTER FROM THE BOARD

(i) data services by the Group to the CTC Group (“ Group Data Services ”);
(ii) data services by the CTC Group to the Group (“ CTC Data Services ”); and

(iii) systems integration services by the Group to the CTC Group (“ SI Services ”).

(Group Data Services, CTC Data Services and SI Services are together referred to as the “ Services ”.)

The previously announced annual caps in respect of the Services for each of the years ending 31 December 2007, 2008 and 2009 are set out in the table below. As the relevant percentage ratios applicable to the existing caps exceeded 0.1% but were less than 2.5%, the Services and the existing caps for each of the years ending 31 December 2007, 2008 and 2009 were only subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules and were exempt from the independent shareholders’ approval requirements under Rule 14A.34 of the Listing Rules.

		Existing annual	cap
	for the year ending 31		December
	2007	2008	2009
	(HK$’000)	(HK$’000)	(HK$’000)
Group Data Services	35,000	40,000	45,000
CTC Data Services	150,000	200,000	250,000
SI Services	562,000	562,000	562,000

REVISED CAPS FOR EACH OF THE YEARS ENDING 31 DECEMBER 2008 AND 2009

The actual aggregate amounts incurred for each of the Services for the year ended 31 December 2007 are set out in the table below. Since the date of the February 2007 Announcement, due to an unexpected increase in the demand for Group Data Services, CTC Data Services and SI Services in the second half of 2007 and an anticipated increase in the volume of such Services in 2008, the Directors currently anticipate that the previously announced existing caps for each of the years ending 31 December 2008 and 2009 (together, the “ Existing Caps ”) will not be sufficient to meet the Group’s requirements.

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LETTER FROM THE BOARD

Accordingly, it is proposed that the Existing Caps be increased in accordance with the revised annual caps for each of the years ending 31 December 2008 and 2009 as set out in the table below:

	Approximate
	actual aggregate
	amount incurred
	for the year	Revised annual cap
	ended 31	for the year ending
	December	31 December
	2007	2008	2009
	(HK$’000)	(HK$’000)	(HK$’000)
Group Data Services	3,512	530,000	650,000
CTC Data Services	91,345	730,000	820,000
SI Services	474,762	1,300,000	1,400,000

The above revised caps for each of the Group Data Services, CTC Data Services and SI Services are referred to as the “ Revised Group Data Services Caps ”, “ Revised CTC Data Services Caps ” and “ Revised SI Caps ” respectively; and together referred to as the “ Revised Caps ” and each as a “ Revised Cap ”.

NEW CAPS FOR THE YEAR ENDING 31 DECEMBER 2010

The Company also proposes to set a new annual cap for each of the Group Data Services, CTC Data Services and SI Services for the year ending 31 December 2010, as set out in the table below (together, the “ New Caps ”):

	New annual cap
	for the year ending
	31 December 2010
	(HK$’000)
Group Data Services	780,000
CTC Data Services	940,000
SI Services	1,500,000

COMPLIANCE WITH THE LISTING RULES

As the percentage ratios applicable to the Revised Group Data Services Caps for the year ending 31 December 2008 (the “ 2008 Group Data Services Cap ”) exceed 0.1% but are less than 2.5%, the Group Data Services for the year ending 31 December 2008 and the 2008 Group Data Services Cap are only subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules and are exempt from the Independent Shareholders’ approval requirements under Rule 14A.34 of the Listing Rules.

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LETTER FROM THE BOARD

The relevant percentage ratios applicable to each of the other Revised Caps and the New Caps all exceed 2.5%. Accordingly, the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) in respect of each of the years ending 31 December 2008 and 2009 and the New Caps in respect of the year ending 31 December 2010 are all subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules as well as approval by the Independent Shareholders in accordance with the requirements of Rule 14A.48 of the Listing Rules.

THE SERVICES

The nature of the terms and conditions constituting the Services, in particular, the bases of calculating the consideration thereunder, are described below, in accordance with the categories of Services specified above.

Group Data Services

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

Group Data Services are generally provided on the basis of the Group’s standard network services application form, which is effectively equivalent to a purchase order. The network services application form incorporates the general terms and conditions of service of the relevant member(s) of the Group, which are available on the Company’s website. The minimum commitment period for the provision of the service is stated in the network services application form. The charges for these Group Data Services may include an installation or one-off charge per circuit and a monthly rental charge. In addition, a number of Services have been entered into otherwise than on the basis of the Group’s standard network services application form. Those Services may incorporate the standard terms and conditions of the relevant member(s) of the Group which is/are party(ies) to the relevant Services and are otherwise on similar terms. In all cases, the calculation of the consideration payable under the network services application form for the provision of Group Data Services is based on one or more of the following:

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

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LETTER FROM THE BOARD

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

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

CTC Data Services

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

The calculation of the consideration payable for the provision of CTC Data Services is based on one or more of the following:

(a) Consideration determined by reference to prices specified in guidance issued by the PRC Government, or in the absence of the PRC Government’s guidance prices, by reference to the market price of the same or similar data services;
(b) Agreed unit prices, determined by reference to comparable market prices, the committed contract duration and/or committed volumes. In this regard, customers committing to a longer contract period or greater volume may enjoy a lower price;
(c) Agreed pricing for individual services on a case-by-case basis, by reference to current market offers and comparable market prices for similar services provided by independent third parties on substantially the same terms and conditions; and/or
(d) Agreed percentage revenue sharing based on the services provided in different service sectors or territories.

Each of the bases of calculation of consideration payable for CTC Data Services described in (a), (b), (c) and (d) above is comparable to those offered by independent third parties.

SI Services

The provision of SI Services refers to the provision by the Group to the CTC Group of services and/or hardware and/or software required to set up a computer system or network system according to the user’s requirements, which include system design, project management, system implementation, consultancy, software development, testing and maintenance. Historically, many contracts relating to SI Services were entered into following a competitive tender process initiated by the CTC Group and, accordingly, were entered into on terms and conditions specified by the relevant member of the CTC Group as part of the tender procedures, whereas some contracts were entered into on an individual basis and were specific to the particular project. These are currently expected to remain unchanged for contracts for SI Services to be entered into in 2008, 2009 and 2010. The consideration payable under

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LETTER FROM THE BOARD

contracts entered into following a tender process is determined by the requirements of the tender and a competitive bidding process. The consideration payable under contracts entered into on an individual basis are determined by reference to the cost of providing the SI Services and the market price for similar services obtainable from other third party service providers. More specifically:

(a) The consideration payable for delivery of hardware and software is generally calculated based on the actual cost incurred for the relevant hardware or software, plus a percentage mark up; and
(b) The service component of the SI Services is generally calculated based on the number of man hours incurred, or the outsourcing costs incurred, in each case with a percentage mark up. The service component of the SI Services generally includes both an implementation service (charged as aforesaid) and a software license.

The bases of calculation of the consideration payable for SI Services are comparable to those offered to independent third parties.

As referred to in the February 2007 Announcement, as part of the Group Data Services and/or the CTC Data Services, the Company may from time to time enter into capacity purchase or sales contracts relating to the grant of indefeasible rights to use bandwidth capacity (“ IRU Contracts ”) available on both groups’ networks to and/or from the CTC Group as part of the normal commercial activities of the Group. These IRU Contracts may exceed a duration of three years. In such circumstances, the Company will, on each occasion, comply with Rule 14A.35(1) of the Listing Rules to appoint an independent financial adviser to explain why a period longer than three years is required for such contracts and to confirm that it is normal business practice for contracts of this type to be of such duration, and the Company is obliged to provide a copy of such independent financial adviser’s opinion to the Stock Exchange.

DESPATCH OF SHAREHOLDERS’ CIRCULAR AND APPOINTMENT OF INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Company has established an independent board committee, consisting of the Independent Non-Executive Directors, to advise the Independent Shareholders as to whether the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole and to advise the Independent Shareholders on how to vote at the EGM to be convened to consider the Services in respect of each of the years ending 31 December 2008, 2009 and 2010 (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps in respect of each of the years ending 31 December 2008 and 2009 (other than the 2008 Group Data Services Cap) and the New Caps in respect of the year ending 31 December 2010, taking into account the recommendations of the independent financial adviser appointed by the Company.

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LETTER FROM THE BOARD

The Company has appointed ING Bank N.V. as the independent financial adviser to make recommendations to the Independent Board Committee and the Independent Shareholders as to whether the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole and to advise the Independent Shareholders on how to vote at the EGM to be convened to consider those matters set out in the preceding paragraph.

Under Rule 14A.18 of the Listing Rules, any connected person of the Company with a material interest in the Services (other than the Group Data Services Caps for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Caps) and the New Caps is required to abstain from voting at the EGM on the resolution to approve the relevant matters. Accordingly, members of the CTC Group who are Shareholders and connected persons with material interests in the proposed transaction, will abstain from voting at the EGM on the resolution. So far as the Directors are aware, having made all reasonable enquiries as at the Latest Practicable Date, CTC and its associates did not hold any shares in the Company. Similarly, so far as the Directors are aware having made all reasonable enquiries, no Shareholder who is required to abstain from voting at the EGM is a party to any voting trusts or other arrangements, agreements or understandings entered into by or binding upon any such Shareholder, nor does any such Shareholder have any obligation or entitlement, whereby such Shareholder has, or may have, temporarily or permanently passed control over the exercise of the voting rights in respect of such Shareholder’s shares in the Company to a third party.

REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS

The Group is principally engaged in providing local, mobile and international telecommunications services, Internet and interactive multimedia services, other technical services, as well as systems integration and technology-related businesses. It is considered that the entering into of the Services is consistent with the commercial objectives of the Group and falls within the core business of the Group. It is anticipated that entering into transactions with the CTC Group relating to the provision of the Services will further strengthen the Group’s position as a provider of information technology services in the PRC.

The Revised Group Data Services Caps, the Revised CTC Data Services Caps and the New Caps for Group Data Services and for CTC Data Services have been determined by reference to: (a) the relevant historical figures and various contracts entered into before 2007 which will continue to be in force in 2008 and/or 2009, contracts under negotiation which are intended to be entered into during 2008 to 2009 and contracts which are expected to be entered into during 2008 to 2009, all of which are for, or are expected to have, a duration of not exceeding three years (other than IRU Contracts); (b) the estimated growth and development of the business of the Group in light of the economic growth in the PRC; (c) the estimated market pricing of that category of Service; and (d) the existing scale and operation of the Group’s business in the PRC.

The Revised SI Caps and the New Caps for SI Services have been determined by reference to: (a) the relevant historical figures; (b) the estimated growth and development of the business of the Group in light of the economic growth in the PRC; (c) the estimated market pricing of that category of transaction; and (d) the existing scale and operation of the Group’s business in the PRC.

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LETTER FROM THE BOARD

The terms and conditions of each of the Services will be on a commercial arm’s length basis, no less favorable to the Group than those obtainable from or offered to independent third parties. In general, the duration or term of each transactions relating to the provision of the Services will not exceed three years (other than IRU Contracts).

The Directors are of the view that the terms of the Group Data Services for the year ending 31 December 2008 will be entered into in the ordinary course of business of the Group, on normal commercial terms after arm’s length negotiations, which will be fair and reasonable and in the interests of the Shareholders as a whole.

The Directors (other than the Independent Non-Executive Directors who will express their opinion in a separate letter, as set out on pages 13 to 14 of this circular) are of the view that the terms of each of the transactions relating to the Services (other than the Group Data Services for the year ending 31 December 2008) will be entered into in the ordinary course of business of the Group, on normal commercial terms after arm’s length negotiations, which will be fair and reasonable and in the interests of the Shareholders as a whole.

WAIVER FROM STRICT COMPLIANCE WITH THE REQUIREMENTS OF RULE 14A.35(1) OF THE LISTING RULES

The Shareholders are referred to the February 2007 Announcement which contains information on the waiver (the “ Previous Waiver ”) from the strict compliance with Rule 14A.35(1) of the Listing Rules granted by the Stock Exchange to the Company. Rule 14A.35(1) of the Listing Rules requires written agreements to be entered into in respect of each continuing connected transaction before it can be disclosed or approved by shareholders in accordance with the Listing Rules. The Company applied for the Previous Waiver on the basis that the Group does not, at the outset, enter into a written agreement with the CTC Group covering all future continuing connected transactions and that it is common practice in the telecommunications and information technology sectors for service providers to enter into agreements as and when particular services or products are requested by the customers, based on technology and prices prevailing at that time. In addition, due to the fact that the CTC Group is an exceptionally large corporation comprising numerous provincial class member units across the PRC, with each provincial subsidiary operating its business independently, those provincial subsidiaries may also be subject to different provincial legal and business requirements. The Previous Waiver was granted by the Stock Exchange on the following conditions (together, the “ Conditions ”):

in respect of the written agreements to be entered into, to the extent that the terms are materially different from existing written agreements, the Company will publish an announcement and will re-comply with the reporting and announcement and/or independent shareholders’ approval requirements under Chapter 14A of the Listing Rules where the annual cap will be calculated on an aggregate basis; and
details of the continuing connected transactions, including, where applicable, details of the independent financial adviser’s opinion, will be disclosed in the Company’s next published annual report and accounts in accordance with Rule 14A.46 of the Listing Rules.

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LETTER FROM THE BOARD

The Company confirms that it has been complying with the Conditions since the date of the February 2007 Announcement and will continue to comply with the Conditions as and when applicable.

Since revision of the Existing Caps by the Company, the Services to be provided in respect of each of the years ending 31 December 2008, 2009 and 2010 will be provided on the same basis as the data services and system integration services transactions described above. In March 2008, the Company made an application to the Exchange for confirmation that the Previous Waiver will continue to be applicable on the same Conditions in respect of the Services to be provided for each of the years ending 31 December 2008, 2009 and 2010 provided that such waiver will be subject to approval by the Independent Shareholders. The Stock Exchange had on 24 April 2008 granted an extension of the Previous Waiver (the “ Waiver ”) subject to the same being approved by the Independent Shareholders as well as the following conditions being met:

(1) in respect of new written agreements to be entered into, to the extent that the terms are materially different from such of the existing written agreements, the Company is required to publish an announcement and re-comply with the reporting and announcement and/or independent shareholders’ approval requirements under Chapter 14A of the Listing Rules where the annual cap will be calculated on an aggregate basis;
(2) in respect of contracts that are of a duration exceeding three years, the Company is required, on each relevant occasion, to appoint an independent financial adviser to explain the reason for a period longer than three years is required, and to confirm that it is normal business practice for contracts of this type to be of such duration, and to provide a copy of the same to the Stock Exchange; and
(3) details of the continuing connected transactions, including the opinions of the independent financial adviser (as mentioned in (2) above), must be included in the Company’s next published annual report.

DESCRIPTION OF CONNECTED RELATIONSHIP

CTC is regarded as a connected person (as defined in the Listing Rules) of the Company because: (i) China Huaxin, a wholly-owned subsidiary of CTC, is a substantial shareholder of Unihub, a non wholly-owned subsidiary of the Company; and (ii) CTC is an associate of China Huaxin. Accordingly, members of the CTC Group are connected persons of the Company and transactions between the Group and the CTC Group constitute connected transactions for the Company under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

EXTRAORDINARY GENERAL MEETING

The Company will convene the EGM for the Independent Shareholders to consider and if deem fit, approve the resolution in respect of those transactions set out in the Notice. The Notice convening the EGM to be held at 12:00 p.m. on 29 May 2008 (Thursday) in the Conference Room, 14th Floor, PCCW Tower, TaiKoo Place, 979 King’s Road, Quarry Bay, Hong Kong (or as soon thereafter as the annual general meeting of the Company convened for the same place and on the same date at 11:00 a.m. shall have been concluded or adjourned) is set out on pages 40 to 41 of this circular.

Voting at the EGM will be taken on a poll.

A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend and vote at the EGM or any adjourned meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrars, Computershare Hong Kong Investor Services Limited, Investor Communications Centre, Rooms 1806-1807, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible, but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish.

GENERAL

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

So far as the Board is aware having made all reasonable enquiries, CTC is an extra-large state-owned telecommunications operator in the PRC. As a principal telecommunications enterprise and the largest basic telecommunications operator of the PRC, CTC owns the global largest fixed-line telephone network that covers cities and towns as well as rural areas of the PRC and penetrates to various corners of the world.

Your attention is drawn to the information set out in the Appendix to this circular.

By Order of the Board of PCCW Limited Alexander Anthony Arena

Group Managing Director

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

9 May 2008

==> picture [86 x 41] intentionally omitted <==

PCCW Limited 電訊盈科有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0008)

To: the Independent Shareholders

Dear Sir or Madam

CONTINUING CONNECTED TRANSACTIONS WITH THE CHINA TELECOM GROUP RELATING TO THE (1) REVISION OF THE 2008 AND 2009 ANNUAL CAPS (2) SETTING OF THE NEW ANNUAL CAPS FOR 2010

We refer to the circular of even date with this letter issued by the Company (“ Circular ”) to the Shareholders of which this letter forms part. Terms defined in the Circular shall have the same meaning in this letter unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to give a recommendation to the Independent Shareholders in respect of the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps, details of which are set out in the letter from the Board contained in the Circular.

Having considered the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps and the opinion and recommendation of ING Bank N.V., the independent financial adviser appointed by the Company, in relation thereto as set out on pages 15 to 28 of the Circular, the Independent Board Committee considers the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps are in the ordinary course of business of the Group and the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps taken as a whole are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, the Independent Board Committee recommends that the Independent Shareholders vote in favour of the resolution to be proposed at the EGM to approve, amongst others, the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps.

The Independent Board Committee draws the attention of the Independent Shareholders to the letter from the Board and the letter from ING Bank N.V. to the Independent Board Committee and the Independent Shareholders which sets out the considerations and factors taken into account in arriving at its recommendations, each as contained in the Circular.

Yours faithfully Independent Board Committee

Dr The Hon Sir Li Kwok Po, David,

Professor Chang Hsin-kang Dr The Hon Sir Li Kwok Po, David, Independent Non-Executive Director GBM, GBS, OBE, JP Independent Non-Executive Director Sir Roger Lobo, CBE, LLD, JP Aman Mehta Independent Non-Executive Director Independent Non-Executive Director

The Hon Raymond George Hardenbergh Seitz

Independent Non-Executive Director

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LETTER FROM ING BANK N.V.

39/F One International Finance Centre 1 Harbour View Street, Central Hong Kong

9 May 2008

To the Independent Board Committee and the Independent Shareholders of PCCW Limited

Dear Sirs

CONTINUING CONNECTED TRANSACTIONS WITH THE CHINA TELECOM GROUP RELATING TO THE (1) REVISION OF THE 2008 AND 2009 ANNUAL CAPS (2) SETTING OF THE NEW ANNUAL CAPS FOR 2010

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders as to whether (i) the terms of the Services (other than the Group Data Services for the year ending 31 December 2008); (ii) the Revised Caps (other than the 2008 Group Data Services Cap); and (iii) the New Caps (together, the “ Transactions ”) are fair and reasonable and in the interest of the Company and its Shareholders as a whole. The details of the Transactions are set out in the circular of the Company dated 9 May 2008 (the “ Circular ”), of which this letter forms part.

This letter sets out our evaluation of the Transactions and our recommendations in relation thereon to the Independent Board Committee and the Independent Shareholders, and is prepared for inclusion in the Circular. Unless otherwise defined, all terms defined in the Circular shall have the same meanings herein.

Unihub is a 50/50 equity joint venture company established in the PRC by Unihub Global Network Technology (China) Limited, an indirect non wholly-owned subsidiary of the Company, and China Huaxin, a wholly-owned subsidiary of CTC. Unihub is an indirect non wholly-owned subsidiary of the Company because the Company indirectly controls the composition of a majority of the board of directors of Unihub. CTC is regarded as a connected person (as defined in the Listing Rules) of the Company because China Huaxin is a substantial shareholder of Unihub and CTC is an associate of China Huaxin. Accordingly, members of the CTC Group are regarded as connected persons of the Company.

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LETTER FROM ING BANK N.V.

Since the relevant percentage ratios applicable to the Revised Caps (other than the 2008 Group Data Services Cap) for each of the years ending 31 December 2008 and 2009, and the New Caps for the year ending 31 December 2010 exceed 2.5%, the Transactions constitute non-exempt continuing connected transactions for the Company under Chapter 14A of the Listing Rules and are subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Company will convene the EGM for the Shareholders to consider and if deem fit, approve the resolution in respect of the Transactions.

We were neither a party to the negotiations entered into by PCCW in relation to the Transactions, nor were we involved in the deliberations leading up to the decision of the Directors to enter into the Transactions. We do not, by this letter, warrant the merits of the Transactions, other than to form an opinion, for the purpose of Chapter 14A of the Listing Rules, on whether the terms of the Transactions are fair and reasonable and that the entering into of the Transactions is in the ordinary and usual course of business, on normal commercial terms, and in the interests of the Company and its Shareholders as a whole.

BASIS OF OUR ADVICE

In formulating our opinion and recommendation, we have relied on the accuracy of the statements, information and representations provided by the Directors. We have assumed that all statements, information and representations contained or referred to in the Circular provided by the Directors and for which the Directors have collectively and individually accepted full responsibility, are true, accurate, and complete in all material respects at the time they were made and continue to be so at the date hereof.

We have been advised by the Directors and believe that no material facts have been withheld or omitted from the information provided and referred to in the Circular. We have assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due and careful enquiries, and were to the best of their knowledge and belief, and that there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading in any material respects.

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion and recommendation. We are not aware of, and have no reason to suspect that, any facts or circumstances, which would render the information provided or the representations made to us untrue, inaccurate or misleading in any material respects, nor do we suspect that any material facts have been omitted or withheld from the information supplied in the Circular. We have not, however, carried out any independent verification of the information provided to us by the Company, or conducted any in-depth investigation into the businesses and affairs of the Group, the CTC Group and their respective associates.

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LETTER FROM ING BANK N.V.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation regarding the Transactions, we have taken into account the following principal factors and reasons:

1. Historical relationship between the Group and the CTC Group

The Group is a premier telecommunications provider in Hong Kong, offering a range of media content and services across four platforms: fixed-line, broadband Internet access, television and mobile. It also provides technical services and large-scale information technology outsourcing projects for public and private sector organizations.

The CTC Group, as a principal telecommunications enterprise and the largest basic telecommunications operator in the PRC, owns the largest global fixed-line telephone network across the PRC.

As advised by the Directors, the Group has an established business relationship with the CTC Group in the telecommunications industry for a number of years. The Group from time to time enters into transactions with the CTC Group relating to the acquisition and provision of certain information technology services and products. In addition, the Company and CTC have, through their respective wholly-owned subsidiary, established an equity joint venture in the PRC, Unihub, to provide information technology solutions to major business organizations. Unihub specializes in providing integrated information technology and telecommunications solutions.

2. Background of the Transactions

The Group commenced the connected relationship with the CTC Group around 2003. This initially involved Unihub providing principally systems integration services, equipment procurement, solutions, project management and consultancy services to the CTC Group. The scope of these transactions subsequently expanded to the provision of data services to and from the CTC Group. The aggregate value of the transactions between the Group and the CTC Group amounted to approximately HK$559 million, HK$561 million and HK$552 million for each of the years ended 31 December 2004, 2005 and 2006 respectively, which were all within the annual cap of HK$563 million for each of these years.

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LETTER FROM ING BANK N.V.

In February 2007, the Company had set new maximum aggregate values for each of the Group Data Services, the CTC Data Services and the SI Services for each of the years ending 31 December 2007, 2008 and 2009. These existing annual caps and the approximate aggregate value incurred for the year ended 31 December 2007 are set out in the table below:

	Approximate actual
	aggregate value incurred
	for the year ended	Existing annual		caps
Category*	31 December	for the year	ending 31	December
	2007	2007	2008	2009
	HK$ ’000	HK$ ’000	HK$ ’000	HK$ ’000
Group Data Services	3,512	35,000	40,000	45,000
CTC Data Services	91,345	150,000	200,000	250,000
SI Services	474,762	562,000	562,000	562,000

Each category of the Services is further described in section 3.1 below.
Principal terms of the Transactions
3.1 Nature of the Transactions

Group Data Services

CTC Data Services

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

SI Services

The provision of SI Services refers to the provision by the Group to the CTC Group of systems integration services and/or hardware and/or software, to be required to set up a computer system or network system according to the user’s requirements, which include system design, project management, system implementation, consultancy, software development, testing and maintenance.

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LETTER FROM ING BANK N.V.

Group Data Services and SI Services are part of the services that the Group provides to the CTC Group as customer whilst CTC Data Services are part of the services that the Group sourced from the CTC Group as supplier in the ordinary course of business of the Group.

3.2 Pricing

Group Data Services

The pricing of Group Data Services is based on one or more of the following:

(a) Cost plus a fixed percentage mark up;
(b) Agreed unit prices, determined by reference to comparable market prices, the committed contract duration and/or committed volumes. In this regard, customers committing to a longer contract period or greater volume may enjoy a lower price;
(c) Agreed pricing for individual services on a case-by-case basis, by reference to current market offers and comparable market prices for similar services provided by independent third parties on substantially the same terms and conditions; and/or
(d) Agreed percentage revenue sharing based on the services provided in different service sectors or territories.

Based on the information provided by the Directors, we understand that different pricing bases, applied by the Group to the CTC Group, are determined by reference to respective types of data services and the nature of the transaction. The Directors have also confirmed that the bases of pricing for such data services described above are comparable to those offered by the Group to independent third parties.

CTC Data Services

The pricing of CTC Data Services is based on one or more of the following:

(a) Consideration determined by reference to prices specified in guidance issued by the PRC government, or in the absence of the PRC government’s guidance prices, by reference to the market price of the same or similar data services;
(b) Agreed unit prices, determined by reference to comparable market prices, the committed contract duration and/or committed volumes. In this regard, customers committing to a longer contract period or greater volume may enjoy a lower price;
(c) Agreed pricing for individual services on a case-by-case basis, by reference to current market offers and comparable market prices for similar services provided by independent third parties on substantially the same terms and conditions; and/or

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LETTER FROM ING BANK N.V.

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

Based on the information provided by the Directors, we understand that different pricing bases, applied by the CTC Group to the Group, are determined by reference to respective types of data service and the nature of the contract. The Directors have confirmed that the bases of pricing for such data services described above are comparable to those offered by independent third parties to the Group.

SI Services

Historically, many contracts relating to SI Services were entered into following a competitive tender process initiated by the CTC Group and accordingly, the contract price was determined through a competitive bidding process. For contracts entered into on an individual basis, the pricing is determined by reference to the cost of providing SI Services and the market price for similar services obtainable from other third party service providers. More specifically, the pricing of SI Services are based on the following:

(a) The consideration for delivery of hardware and software is generally calculated based on the actual cost incurred for the relevant hardware or software, plus a percentage mark up; and
(b) The service component of SI Services is generally calculated based on the number of man hours incurred, or the outsourcing costs incurred, in each case with a percentage mark up. The service component of SI Services generally includes both an implementation service (charged as aforesaid) and a software license.

The Directors have confirmed that the bases of pricing for such systems integration services described above are comparable to those offered by the Group to independent third parties.

3.3 Other terms of the Transactions

Group Data Services and CTC Data Services

Group Data Services are generally provided on the basis of the Group’s standard network services application form, which incorporates the general terms and conditions of services of the relevant member(s) of the Group. A number of Group Data Services have been entered into otherwise than on the basis of the Group’s standard network services application form and such Group Data Services may incorporate the standard terms and conditions of the relevant member(s) of the Group. We have reviewed several master order forms in relation to Group Data Services provided by the Group to the CTC Group or to independent third parties. The key terms of such master order form, including one-stop shop information, billing information and pricing, are comparable to those offered to both the CTC Group and independent third parties. We note the terms are similar regardless of the identity of the counterparty(ies). The duration, pricing,

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LETTER FROM ING BANK N.V.

billing schedule and terminating clauses of each agreement are determined in a separate international managed bandwidth service form, attached to the master order form, on a case-by-case basis. As advised by the Directors, most contracts for Group Data Services last no longer than three years and have a monthly billing schedule.

Regarding CTC Data Services, we have reviewed the “one-stop service agreement for bandwidth business” between the Group and the CTC Group, and service bills supplied by a member of the CTC Group to the Group. We note that the key terms of such agreement include the main principles, application procedures, standard contract duration, pricing and billing and payment terms, support procedures and terminating provisions. Such agreement is standard to all customers of one-stop service jointly provided by the Group and the CTC Group. We have also compared such agreement with that between the Group and an independent third party. The Directors have confirmed that the terms and conditions of both agreements are broadly in line with industry standards.

As part of the Group Data Services and/or the CTC Data Services, the Group may from time to time enter into capacity purchase or sales contracts relating to the grant of indefeasible rights to use bandwidth capacity (“ IRU Contracts ”) available on both groups’ networks to and/or from the CTC Group. The Directors have confirmed that the duration of IRU contracts is usually between three to 15 years. In the event that an IRU Contract exceeds three years, the Company will, on each occasion, comply with Rule 14A.35(1) of the Listing Rules to appoint an independent financial adviser to explain why a period longer than three years is required for such contract and to confirm that it is normal business practice for contracts of this type to be of such duration, and the Company is obliged to provide a copy of such independent financial adviser’s opinion to the Stock Exchange.

SI Services

Regarding SI Services, we have reviewed several system integration contracts and equipment procurement contracts, both relating to SI Services, provided by Unihub to the CTC Group or to independent third parties. The key terms of such system integration contracts include billing and payment terms, project certification process, support service, training, liabilities, and indemnities provisions. The key terms of equipment procurement contracts include contract principles, pricing terms, payment, goods delivery, certification, liabilities and indemnities provisions. Generally, both types of contracts with the CTC Group are comparable to those with independent third parties. The Directors have confirmed that none of the system integration contracts and equipment procurement contracts is of duration longer than three years. As advised by the Directors, we note that most of the contracts relating to SI Services the Group has entered into with the CTC Group were all won in a competitive tender process.

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LETTER FROM ING BANK N.V.

However, in both types of contracts provided, there are a few terms offered to the CTC Group which are different from those offered to independent third parties, such as the duration of the project certification process for system integration contracts, the payment and the delivery terms for equipment procurement contracts, and the upper limit for claim damages of both types of contracts. After discussion with the management of the Company, we are of the opinion that these differences are not of material significance. We consider that the terms are normal commercial terms in accordance with Rule 14A.10(8) of the Listing Rules for large corporate clients such as the CTC Group.

As stated in the “Letter from the Board” contained in the Circular, the terms and conditions of each of the Services will be on a commercial arm’s length basis and no less favorable to the Group than those obtainable from or offered to independent third parties.

3.4 Waiver

The Company has applied for an extension of the waiver previously granted by the Stock Exchange from strict compliance with the requirement of having written agreements under Rule 14A.35(1) of the Listing Rules on the basis that the Company had not, at the outset, entered into a written agreement with the CTC Group covering all future continuing connected transactions in relation to the Services. The Stock Exchange on 24 April 2008 granted an extension of the waiver subject to the same being approved by the Independent Shareholders as well as the following conditions being met:

(1) in respect of new written agreements to be entered into, to the extent that the terms are materially different from such of the existing written agreements, the Company is required to publish an announcement and re-comply with the reporting and announcement and/or independent shareholders’ approval requirements under Chapter 14A of the Listing Rules where the annual cap will be calculated on an aggregate basis; and
(2) in respect of contracts that are of a duration exceeding three years, the Company is required, on each relevant occasion, to appoint an independent financial adviser to explain the reason for a period longer than three years is required, and to confirm that it is normal business practice for contracts of this type to be of such duration, and to provide a copy of the same to the Stock Exchange; and
(3) details of the continuing connected transactions, including the opinions of the independent financial adviser (as mentioned in (2) above), must be included in the Company’s next published annual report.

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LETTER FROM ING BANK N.V.

4. Annual Caps

As set out in the “Letter from the Board” contained in the Circular, the Revised Caps set out below for each of the Services (other than the Group Data Services for the year ending 31 December 2008) for each of the years ending 31 December 2008 and 2009 are proposed to replace the existing annual caps (details of which are described in section 2 of this letter) due to an unexpected increase in the demand for Group Data Services, CTC Data Services and SI Services in the second half of 2007 and further anticipated increase in the volume of the Services in 2008. The Company also proposes to set a new annual cap for each of the Group Data Services, CTC Data Services and SI Services for the year ending 31 December 2010.

4.1 Actual aggregate value, the existing annual caps, the Revised Caps and the New Caps

Set out below are three tables comprising of actual aggregate value for the year ended 31 December 2007, the existing annual caps for each of the years ending 31 December 2007, 2008 and 2009, the Revised Caps and the New Caps in relation to Group Data Services, CTC Data Services and SI Services respectively.

Table (1): Actual aggregate value for the year ended 31 December 2007, the existing annual caps for each of the years ending 31 December 2007, 2008 and 2009, the Revised Caps and the New Cap in relation to Group Data Services

				Approximate	Approximate
				percentage increase	percentage increase
				in the 2008 Group	in the Revised Cap
		The		Data Services Cap	in 2009 or the New
	Actual	existing	Revised	with reference to	Cap with reference
	aggregate	annual	Caps /	actual aggregate	to the Revised Cap
Year	value	cap	New Cap	value	in the previous year
	HK$‘000	HK$‘000	HK$‘000
2007	3,512	35,000
2008		40,000	530,000	14,991%
2009		45,000	650,000		23%
2010			780,000		20%

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LETTER FROM ING BANK N.V.

Table (2): Actual aggregate value for the year ended 31 December 2007, the existing annual caps for each of the years ending 31 December 2007, 2008 and 2009, the Revised Caps and the New Cap in relation to CTC Data Services

					Approximate
					percentage increase
				Approximate	in the Revised Cap
				percentage increase	in 2009 or the
		The		in the Revised Cap	New Cap with
	Actual	existing	Revised	in 2008 with	reference to the
	aggregate	annual	Caps /	reference to actual	Revised Cap in the
Year	value	cap	New Cap	aggregate value	previous year
	HK$‘000	HK$‘000	HK$‘000
2007	91,345	150,000
2008		200,000	730,000	699%
2009		250,000	820,000		12%
2010			940,000		15%

Table (3): Actual aggregate value for the year ended 31 December 2007, the existing annual caps for each of the years ending 31 December 2007, 2008 and 2009, the Revised Caps and the New Cap in relation to SI Services

					Approximate
					percentage increase
				Approximate	in the Revised Cap
				percentage increase	in 2009 or the
		The		in the Revised Cap	New Cap with
	Actual	existing	Revised	in 2008 with	reference to the
	aggregate	annual	Caps /	reference to actual	Revised Cap in the
Year	value	cap	New Cap	aggregate value	previous year
	HK$‘000	HK$‘000	HK$‘000
2007	474,762	562,000
2008		562,000	1,300,000	174%
2009		562,000	1,400,000		8%
2010			1,500,000		7%

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LETTER FROM ING BANK N.V.

4.2 Basis of the Revised Caps and the New Caps

In determining whether the caps proposed by the Group are fair and reasonable and are in the interests of the Company and its Shareholders as a whole, the Directors have provided us with information on the bases for setting the Revised Caps and the New Caps.

4.2.1 Group Data Services

The 2008 Group Data Services Cap is approximately 151 times the actual aggregate value of Group Data Services incurred in 2007. There is an approximately 23% increase in the Revised Group Data Services Cap in 2009 as compared to the 2008 Group Data Services Cap, and a subsequent 20% increase in the New Cap for Group Data Services in 2010 as compared to the Revised Group Data Services Cap in 2009.

The Directors have confirmed that such increases are mainly attributable to (i) the relevant historical figures; (ii) contracts entered in 2007 which will continue to be in force in 2008 and/or 2009, contracts under negotiation which are intended to be entered into during 2008 to 2009, and contracts expected to be entered into during 2008 to 2009; (iii) continuing market and business development of the Group in the PRC; (iv) the estimated pricing of Group Data Services; and (v) the existing scale and operation of the Group’s business.

There is a large increase in the 2008 Group Data Services Cap as compared to the actual aggregate value incurred in 2007. The Group continuously improves its international networks with the objective of increasing operating margins. It is also the business strategy of the Group to further strengthen the business relationship with the CTC Group. As advised by the Directors, strong market growth, as reflected in the 92% growth in the exit Mbps of international private leased circuit bandwidth as disclosed in the Company’s 2007 annual report, and stabilizing bandwidth service fee, due to ease of international bandwidth supply glut, have jointly contributed to a larger-than-expected 20% increase in cost of sales of telecommunication services in 2007. All these three factors have contributed to the Company’s setting of the 2008 Group Data Services Cap at HK$530 million.

As advised by the Directors, the subsequent 23% increase in Revised Cap for Group Data Services in 2009 and the 20% increase in the New Cap in 2010 are based on normal business growth of the Group in the PRC.

4.2.2 CTC Data Services

We note that there is an approximately 699% increase in the Revised CTC Data Services Cap in 2008 as compared to the actual aggregate value incurred in 2007, an approximately 12% increase in the Revised Cap in 2009 as compared to that in 2008, and a subsequent approximately 15% increase in the New Cap for CTC Data Services in 2010 as compared to the Revised Cap for CTC Data Services in 2009.

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LETTER FROM ING BANK N.V.

The Directors have confirmed that such increases are mainly attributable to (i) the relevant historical figures; (ii) contracts entered in 2007 which will continue to be in force in 2008 and/or 2009, contracts under negotiation which are intended to be entered into during 2008 and/or 2009, and contracts expected to be entered into during 2008 and/or 2009; (iii) continuing market and business development of the Group in the PRC; (iv) the estimated pricing of CTC Data Services; and (v) the existing scale and operation of the Group’s business.

The large increase in the Revised CTC Data Services Cap for 2008 reflects the intention of the Group to develop a strategic business relationship with the CTC Group. The Group expects a reciprocal increase in the amount of CTC Data Services corresponding to the increase in the amount of Group Data Services. We note that the increases in amounts of the Revised Caps and/or New Caps in Group Data Services and CTC Data Services are comparable for each of 2009 and 2010. In 2009, the Revised Cap increases by HK$90 million for CTC Data Services as compared to an increase of HK$120 million for Group Data Services. In 2010, the New Cap is set at HK$120 million higher than the Revised Cap for CTC Data Services, as compared to an increase of HK$130 million for Group Data Services.

4.2.3 SI Services

We note that there is an approximately 174% increase in the Revised SI Cap in 2008 as compared to the actual aggregate value incurred in 2007, an approximately 8% increase in the Revised SI Cap in 2009 as compared to that in 2008 and a subsequent approximately 7% increase in the New Cap for SI Services in 2010 compared to the Revised SI Cap in 2009.

Among the Group, Unihub contributes most to the revenue of SI Services. As advised by the Directors, SI Services revenue is expected to increase in 2008 because of (i) the unexpected increase in services demand in the second half of 2007. In particular, the Group has had to delay two large projects to 2008 because entering into these two projects would have resulted in actual aggregate value for SI Services with the CTC Group exceeding the existing annual cap in 2007 for SI Services; (ii) recent market developments and major events, such as the forthcoming 2008 Summer Olympics in Beijing; (iii) strong growth in broadband service revenue of the CTC Group in 2007; (iv) strong brand name recognition of Unihub; (v) Unihub providing more customized services to the CTC Group and thus charging higher services fees; and (vi) Unihub’s close business relationship with the CTC Group and its expected participation in the CTC Group’s network investment projects.

We note that the CTC Group reported a 32% increase in revenue in Internet charge, including broadband services, in 2007.

Given the rapid economic growth in the PRC, we consider the 8% increase in the Revised SI Cap in 2009 and the 7% increase in the New Cap for SI Services in 2010 reasonable, reflecting the Group’s expected normal business growth.

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LETTER FROM ING BANK N.V.

Annual review of continuing connected transaction

Under the Listing Rules, each year the Independent Non-Executive Directors must review the Services and confirm in the Company’s annual report and accounts that the same have been entered into:

(1) In the ordinary and usual course of business of the Company;
(2) Either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favorable to the Company than terms available to or from (as appropriate) independent third parties; and
(3) On terms that are fair and reasonable and in the interests of the Shareholders as a whole.

The Company will also be required to comply with all other continuing obligations under the Listing Rules, including its auditors’ confirmation that the Services have not exceeded their respective annual caps with the relevant Listing Rules. In addition, as a condition of the waiver as set out in section 3.4 above, in respect of the written agreements to be entered into, to the extent that the terms are materially different from those of the existing written agreement, the Company will publish an announcement and will re-comply with the reporting and announcement and/or independent shareholders’ approval requirements under Chapter 14A of the Listing Rules where the annual cap will be calculated on an aggregate basis.

CONCLUSION AND RECOMMENDATION

Having analyzed and considered the principal factors as set out in this letter above, we would draw your attention to the following key factors, which should be read in conjunction with and interpreted in the full context of the Circular, in arriving at our conclusion:

(i) The Group has an established business relationship with the CTC Group, one of the two major fixed-line telephone networks across the PRC, for a number of years and has an interest in an equity joint venture with the CTC Group. It is the intention of the Group to develop its solid relationship with the CTC Group further;
(ii) The Services are in the ordinary course of business of the Group;
(iii) The Directors confirm that the terms and conditions of each of the Services will be on a commercial arm’s length basis, no less favorable to the Group than those obtainable from or offered to independent third parties. In particular, the pricing bases of the Services are comparable to those offered to or by independent third parties. The duration of the term of each transaction relating to the provision of the Services will not exceed three years, save for the IRU contracts which are usually three to 15 years. In the event that an IRU Contract exceeds three years, the Company will comply with Rule 14A.35(1) of the Listing Rules accordingly;

— 27 —

LETTER FROM ING BANK N.V.

(iv) The Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps have been increased significantly and determined by reference to, amongst others, the strong economic growth in the PRC, the unexpected increase in the demand for the Services in the second half of 2007, the expected future business growth of the Group, and the Group’s strategy to develop its business relationship with the CTC Group further; and
(v) The Services will be subject to annual review by the Independent Non-Executive Directors who will confirm that the Services are carried out in the ordinary and usual course of business of the Company, on normal commercial terms or on terms no less favorable to the Company than terms available to or from independent third parties.

Based on the above, we are of the opinion that (i) the entering into of the Services is in the ordinary course of business of the Company; (ii) the terms of the existing agreements in relation to the Services (other than the Group Data Services for the year ending 31 December 2008) are normal commercial terms; and (iii) the terms of the Services (other than the Group Data Services for the year ending 31 December 2008), the Revised Caps (other than the 2008 Group Data Services Cap) and the New Caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole so far as the Company and the Shareholders are concerned. Therefore, we advise the Independent Shareholders and the Independent Board Committee to recommend the Independent Shareholders, to vote in favor of the ordinary resolution to be proposed at the EGM in relation to the Transactions.

Yours faithfully For and on behalf of ING BANK N.V. Malcolm E.O. Brown Managing Director

— 28 —

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to PCCW. The Board collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

(i) Interests of Directors in PCCW and its associated corporation

As at the Latest Practicable Date, the interests and short positions of the directors and chief executive of PCCW and their associates in the shares, underlying shares and debentures of PCCW or any of its associated corporations (within the meaning of Part XV of the SFO) which: (a) were required to be notified to PCCW and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) were required pursuant to Section 352 of the SFO to be entered in the register referred to therein; or (c) are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to PCCW and the Stock Exchange were as follows:

(A) Interests in PCCW

The table below sets out the aggregate long positions in the shares and underlying shares of PCCW held by the directors and chief executive of PCCW:

					Number of
		Number of ordinary shares			underlying shares held		Percentage of issued
Name of director/	Personal	Family	Corporate	Other	under equity		share
chief executive	interests	interests	interests	interests	derivatives	Total	capital
Li Tzar Kai, Richard	—	—	250,109,824	1,650,518,335	—	1,900,628,159	28.03%
			(Note 1(a))	(Note 1(b))
Alexander Anthony	760,000	—	—	—	15,800,200	16,560,200	0.24%
Arena					(Note 2)
Peter Anthony Allen	253,200	—	—	—	4,629,200	4,882,400	0.07%
					(Note 3)
Chung Cho Yee, Mico	1,176,260	18,455	—	—	14,390,400	15,585,115	0.23%
		(Note 4)			(Note 3)
Lee Chi Hong, Robert	992,600	511	—	—	6,000,000	6,993,111	0.10%
	(Note 5(a))	(Note 5(b))			(Note 3)
Sir David Ford	—	—	—	—	3,000,000	3,000,000	0.04%
					(Note 3)
Prof Chang Hsin-kang	64,000	—	—	—	—	64,000	0.001%
Dr The Hon Sir Li	600,000	—	—	—	—	600,000	0.009%
Kwok Po, David

Notes:

(a) Of these shares, Pacific Century Diversified Limited, a wholly-owned subsidiary of Chiltonlink Limited, held 216,362,824 shares and Eisner Investments Limited held 33,747,000 shares. Li Tzar Kai, Richard owned 100% of Chiltonlink Limited and Eisner Investments Limited.

— 29 —

GENERAL INFORMATION

APPENDIX

(b) These interests represented:
(i) a deemed interest in 36,726,857 shares of PCCW held by Yue Shun Limited, a subsidiary of Hutchison Whampoa Limited (“ HWL ”). Cheung Kong (Holdings) Limited (“ Cheung Kong ”) through certain subsidiaries held more than one-third of the issued share capital of HWL. Li Tzar Kai, Richard was a discretionary beneficiary of certain discretionary trusts which held units in unit trusts which in turn held interests in certain shares of Cheung Kong and HWL. Li Tzar Kai, Richard was also interested in one-third of the issued share capital of two companies, which owned all the shares of the trustee companies which acted as trustees of such discretionary trusts and unit trusts. Accordingly, Li Tzar Kai, Richard was deemed, under the SFO, to have an interest in the 36,726,857 shares of PCCW held by Yue Shun Limited;
(ii) a deemed interest in 87,018,177 shares of PCCW held by Pacific Century Group Holdings Limited (“ PCGH ”). Li Tzar Kai, Richard was the founder of certain trusts which held 100% interests in PCGH. Accordingly, Li Tzar Kai, Richard was deemed, under the SFO, to have an interest in the 87,018,177 shares of PCCW held by PCGH; and
(iii) a deemed interest in 1,526,773,301 shares of PCCW held by Pacific Century Regional Developments Limited (“ PCRD ”), a company in which PCGH had, through certain wholly-owned subsidiaries being Anglang Investments Limited, Pacific Century Group (Cayman Islands) Limited, Pacific Century International Limited and Borsington Limited, an aggregate of 75.33% interest. Li Tzar Kai, Richard was the founder of certain trusts which held 100% interests in PCGH. Accordingly, Li Tzar Kai, Richard was deemed, under the SFO, to have an interest in the 1,526,773,301 shares of PCCW held by PCRD.
These interests represented Alexander Anthony Arena’s beneficial interest in: (a) 200 underlying shares held in the form of 20 American Depositary Receipts which constituted listed equity derivatives; and (b) 15,800,000 underlying shares in respect of share options granted by PCCW to Alexander Anthony Arena as beneficial owner, the details of which are set out in paragraph (C) below.
These interests represented the interests in underlying shares in respect of share options granted by PCCW to these directors as beneficial owners, the details of which are set out in paragraph (C) below.
These shares were held by the spouse of Chung Cho Yee, Mico.
(a) These shares were held jointly by Lee Chi Hong, Robert and his spouse.
(b) These shares were held by the spouse of Lee Chi Hong, Robert.

— 30 —

GENERAL INFORMATION

APPENDIX

(B) Interests in associated corporation of PCCW

The table below sets out the long position in the underlying shares of Pacific Century Premium Developments Limited (“ PCPD ”) held by the director and chief executive of PCCW:

					Number of
					underlying
	Number of shares of PCPD				shares of		Percentage
					PCPD held		of issued
Name of director/	Personal	Family	Corporate	Other	under equity		share
chief executive	interests	interests	interests	interests	derivatives	Total	capital
Chung Cho Yee, Mico	—	—	—	—	5,000,000	5,000,000	0.21%

The above interest represented the interest in underlying shares in respect of share options granted by PCPD to the director and chief executive of PCCW as beneficial owner pursuant to a share option scheme adopted by PCPD on 17 March 2003 and was valid for ten years after the date of adoption, the shareholders of PCPD approved the termination of the scheme at the annual general meeting of PCPD held on 13 May 2005, the details of which are set out as follows:

					Number
Name of director/		Vesting	Exercisable	Exercise	of options
chief executive	Date of grant	period	period	price	outstanding
	(Note)	(Note)	(Note)	HK$
Chung Cho Yee, Mico	12.20.2004	Fully vested on	12.20.2004 to	2.375	5,000,000
		12.20.2004	12.19.2014

Note: All dates are shown month/day/year.

— 31 —

GENERAL INFORMATION

APPENDIX

(C) Directors’ rights to acquire shares of PCCW

As at the Latest Practicable Date, the directors’ interests in share options of PCCW which remain outstanding are summarised below:

					Number of
Name of director/ chief		Vesting	Exercisable	Exercise	options
executive	Date of grant	period	period	price	outstanding
	(Note)	(Note)	(Note)	HK$
Alexander Anthony Arena	08.28.1999	08.17.2000 to	08.17.2000 to	11.7800	3,200,000
		08.17.2004	08.17.2009
	08.26.2000	08.26.2001 to	08.26.2001 to	60.1200	1,600,000
		08.26.2005	08.26.2010
	02.20.2001	08.26.2001 to	08.26.2001 to	16.8400	1,600,000
		08.26.2005	01.22.2011
	07.25.2003	07.25.2004 to	07.25.2004 to	4.3500	6,400,000
		07.25.2006	07.23.2013
	02.08.2005	02.08.2006 to	02.08.2006 to	4.4750	3,000,000
		02.08.2007	02.07.2009
Peter Anthony Allen	08.28.1999	08.17.2000 to	08.17.2000 to	11.7800	272,000
		08.17.2002	08.17.2009
	08.26.2000	08.26.2001 to	08.26.2001 to	60.1200	178,600
		08.26.2005	08.26.2010
	02.20.2001	08.26.2001 to	08.26.2001 to	16.8400	178,600
		08.26.2005	01.22.2011
	07.25.2003	07.25.2004 to	07.25.2004 to	4.3500	2,000,000
		07.25.2006	07.23.2013
	02.08.2005	02.08.2006 to	02.08.2006 to	4.4750	2,000,000
		02.08.2007	02.07.2009
Chung Cho Yee, Mico	08.28.1999	08.17.2000 to	08.17.2001 to	11.7800	3,575,200
		08.17.2004	08.17.2009
	08.26.2000	08.26.2001 to	08.26.2001 to	60.1200	1,060,000
		08.26.2005	08.26.2010
	02.20.2001	08.26.2001 to	08.26.2001 to	16.8400	1,060,000
		08.26.2005	01.22.2011
	07.25.2003	07.25.2004 to	07.25.2004 to	4.3500	5,695,200
		07.25.2006	07.23.2013
	02.08.2005	02.08.2006 to	02.08.2006 to	4.4750	3,000,000
		02.08.2007	02.07.2009
Lee Chi Hong, Robert	07.25.2003	07.25.2004 to	07.25.2004 to	4.3500	5,000,000
		07.25.2006	07.23.2013
	02.08.2005	02.08.2006 to	02.08.2006 to	4.4750	1,000,000
		02.08.2007	02.07.2009
Sir David Ford	07.25.2003	07.25.2004 to	07.25.2004 to	4.3500	1,000,000
		07.25.2006	07.23.2013
	02.08.2005	02.08.2006 to	02.08.2006 to	4.4750	2,000,000
		02.08.2007	02.07.2009

Note: All dates are shown month/day/year.

— 32 —

APPENDIX

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the directors or the chief executive of PCCW or their associates had any interests or short positions in the shares, underlying shares and debentures of PCCW or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to PCCW and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules and which were required to be entered into the register required to be kept under Section 352 of the SFO.

(ii) Interests of substantial shareholders and other persons required to be disclosed under the SFO

As at the Latest Practicable Date, so far as is known to the directors and chief executive of PCCW, the following persons (other than any directors or chief executive of PCCW) were substantial shareholders of PCCW (as defined in the Listing Rules) and had interests or short positions in the shares and underlying shares which fall to be disclosed to PCCW under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were required to be entered into the register required to be kept under Section 336 of the SFO or who is, directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of PCCW or any other member of the Group:

(A) Interests of substantial Shareholders

		Number of shares/	Percentage of
Name of shareholder	Note	underlying shares held	issued share capital
PCRD		1,526,773,301	22.52%
PCGH	1	1,613,791,478	23.80%
Star Ocean Ultimate Limited	2	1,613,791,478	23.80%
The Ocean Trust	2	1,613,791,478	23.80%
The Starlite Trust	2	1,613,791,478	23.80%
OS Holdings Limited	2	1,613,791,478	23.80%
Ocean Star Management Limited	2	1,613,791,478	23.80%
The Ocean Unit Trust	2	1,613,791,478	23.80%
The Starlite Unit Trust	2	1,613,791,478	23.80%
China Network Communications Group	3	1,343,571,766	19.81%
Corporation (“China Netcom”)

Notes:

These interests represented (i) PCGH’s beneficial interests in 87,018,177 shares; and (ii) PCGH’s interests through its controlled corporations (being its wholly-owned subsidiaries, Borsington Limited, Pacific Century International Limited, Pacific Century Group (Cayman Islands) Limited and Anglang Investments Limited, which together controlled 75.33% of PCRD) in 1,526,773,301 shares held by PCRD.
On April 18, 2004, Li Tzar Kai, Richard transferred the entire issued share capital of PCGH to Ocean Star Management Limited as trustee of The Ocean Unit Trust and The Starlite Unit Trust. The entire issued share capital of Ocean Star Management Limited was held by OS Holdings Limited. The Ocean Trust and The Starlite Trust held all units of The Ocean Unit Trust and The Starlite Unit Trust respectively. Star Ocean Ultimate Limited was the discretionary trustee of The Ocean Trust and The Starlite Trust.
China Netcom indirectly holds these interests through its indirect wholly-owned subsidiary China Netcom Corporation (BVI) Limited.

— 33 —

GENERAL INFORMATION

APPENDIX

(B) Interests of other persons required to be disclosed under the SFO

As at the Latest Practicable Date, the following person (not being directors, the chief executive or substantial shareholders of PCCW) had interests or short positions in the shares and underlying shares of PCCW as recorded in the register required to be kept under Section 336 of the SFO:

			Number of shares/	Percentage of issued
Name	of shareholder		underlying shares held	share capital
Ocean	Star Investment Management Limited	Note	1,613,791,478	23.80%

Note: Ocean Star Investment Management Limited was deemed interested under the SFO in the shares of PCCW by virtue of it being the investment manager of The Ocean Unit Trust and The Starlite Unit Trust which together held 100% of PCGH (see the notes of paragraph 2(ii)(A) above).

Name of non wholly-owned	Name of registered	Number of shares held by	Holding
subsidiaries of PCCW	substantial shareholder(s)	substantial shareholder(s)	percentage
Unihub China Information	China Huaxin Post and	N/A	50%
Technology Company Limited	Telecommunications Economy
	Development Centre
Pacific CyberTrans (Holdings)	Huajian Digital Technology Co.	4,900 ordinary shares	49%
Co. Ltd.	Ltd.
CSL United Personalcom Limited	Tin Sing Telecom Limited	33,000 ordinary shares	33%
(In Members’ Voluntary
Liquidation)
JRM (BVI) Company Limited	El Grande Holdings Limited	240 ordinary shares	20%
	China Management Service	120 ordinary shares	10%
	Limited	999,880 preferred shares	12%
Profit Interface No. 8 Limited	Sybond Venture Limited	2,500 ordinary shares	29.41%
(In Voluntary Liquidation)
PCCW (Macau), Limitada	Mappa-Macau Projects &	1 ordinary share (issued at	25%
	Promotions Agency Limited	MOP$500,000)
Unihub Global Network	I-strength Developments Limited	2,357 ordinary shares	23.57%
Technology (China) Limited
Hoover Express Limited	Luen Yum Development	2,000 ordinary shares	20%
	Company Limited
Stable King Development	Luen Yum Development	20 ordinary shares	20%
Company Limited	Company Limited

— 34 —

GENERAL INFORMATION

APPENDIX

Name of non wholly-owned	Name of registered	Number of shares held by	Holding
subsidiaries of PCCW	substantial shareholder(s)	substantial shareholder(s)	percentage
Ocean Fine Pte Limited	Ocean Fine Industrial	15 ordinary shares	15%
	Development Limited
Unicom Yellow Pages	聯通興業科貿有限公司	N/A	20%
Information Co., Ltd.

Save as disclosed above, the directors and the chief executive of PCCW are not aware that there is any person (other than any directors or chief executive of PCCW) who, as at the Latest Practicable Date, had an interest or a short position in the shares and underlying shares of PCCW which would fall to be disclosed to PCCW under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were required to be entered into the register required to be kept under Section 336 of the SFO, or who is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of PCCW or any other member of the Group.

3. DIRECTORS’ INTERESTS IN CONTRACTS

(a) As at the Latest Practicable Date, none of the Directors had entered, or proposed to enter into a service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.
(b) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been, since 31 December 2007 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by, or leased to the Company or any member of the Group, or were proposed to be acquired or disposed of by, or leased to, any member of the Group.
(c) As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting at the date of this circular and which is significant in relation to the business of the Group.

4. LITIGATION

As at the Latest Practicable Date, no litigation or claim of material importance is known to the directors of PCCW to be pending or threatened by or against any member of the Group.

— 35 —

GENERAL INFORMATION

APPENDIX

5. COMPETING INTERESTS

As at the Latest Practicable Date, the following are the interests of the directors of PCCW in businesses apart from the Group’s business, which compete or are likely to compete, either directly or indirectly, with the Group’s business:

Name of director	Name of company	Nature of business	Nature of interests
Li Tzar Kai, Richard	Cheung Kong and its	Property development and	Deemed interests in
	subsidiaries (the “Cheung	investment, hotel and	Cheung Kong (Note 1)
	Kong Group”)	serviced suite operation,
		property and project
		management and
		investment in securities
	HWL and its subsidiaries	Ports and related services,	Certain personal and
	(the “Hutchison Group”)	property and hotels,	deemed interests in
		retail and	HWL (Note 2)
		manufacturing, energy,
		infrastructure, finance
		and investments, and
		telecommunications
Chung Cho Yee, Mico	Capital Strategic Investment	Property investment and	Non-Executive Chairman
(Note 3)	Limited (“CSI”) and its	securities investment	and beneficial owner of
	subsidiaries		35.69% of CSI
Zhang Chunjiang	China Netcom and its	(Note 4)	Chairman of China Netcom
	subsidiaries including		and Chairman and
	China Netcom Group		Executive Director of
	Corporation (Hong Kong)		CNC HK
	Limited (“CNC HK”)
Zuo Xunsheng	China Netcom and its	(Note 4)	Vice President of China
	subsidiaries including		Netcom and Executive
	CNC HK		Director and Chief
			Executive Officer of
			CNC HK
Li Fushen	China Netcom and its	(Note 4)	Chief Accountant of China
	subsidiaries including		Netcom and Executive
	CNC HK		Director and Chief
			Financial Officer of
			CNC HK

In addition, Li Tzar Kai, Richard, Peter Anthony Allen and Lee Chi Hong, Robert are directors of certain private companies (the “ Private Companies ”), which are engaged in property development and investment in Hong Kong and Japan.

Further, Li Tzar Kai, Richard, Alexander Anthony Arena and Peter Anthony Allen are directors of PCRD. PCRD acts as an investment holding company of, among others, interests in PCCW and property and infrastructure investment, in the Asia Pacific region, including Vietnam.

The business interests of the Private Companies in Hong Kong are not significant when compared with the business of the Group and it is unlikely that such business interests will compete with the business of the Group. The business interests in Japan, the Asia Pacific region, including Vietnam are also unlikely to compete with the existing business of the Group.

— 36 —

GENERAL INFORMATION

APPENDIX

Li Tzar Kai, Richard has a controlling interest in some of the Private Companies. Further, he is or may be regarded as interested in PCRD and PCGH due to the interests as disclosed in the above paragraph 2(i) under the section headed “Interests of Directors in PCCW and its associated corporation” in this appendix.

As PCRD and the Private Companies are involved in the development and/or investment of properties of different types and/or in different locations, the Group has been operating independently of, and at arm’s length from, the businesses of those companies.

Furthermore, the Group holds minority equity interests in a number of Internet-related companies in which the Group is entitled to appoint, and has appointed, one or more directors to the board of these companies to represent the interests of the Group. Some or all of these companies may compete directly or indirectly, with certain aspects of the Group’s business.

Other than as disclosed above, none of the Directors is interested in any business, apart from the Group’s businesses, which competes or is likely to compete, either directly or indirectly, with the Group’s businesses.

Notes:

Certain businesses of the Cheung Kong Group may compete with certain aspects of the business of the Group. Li Tzar Kai, Richard is one of the discretionary beneficiaries of certain discretionary trusts which hold units in unit trusts which in turn are interested in certain shares of Cheung Kong. Li Tzar Kai, Richard holds one-third of the issued share capital of two companies, which own all the shares in the trustee companies which act as trustees of such discretionary trusts and unit trusts. These trustee companies perform their functions as trustees independently without any reference to Li Tzar Kai, Richard. In view of the above, PCCW considers that Li Tzar Kai, Richard is not able to exert control or influence over the Cheung Kong Group.
Li Tzar Kai, Richard was a director of HWL and certain of its subsidiaries until August 16, 2000, the day before the acquisition of Cable & Wireless HKT Limited (now known as PCCW-HKT Limited) became effective. Certain businesses of the Hutchison Group compete with certain aspects of the business of the Group. Li Tzar Kai, Richard has a personal interest in 110,000 shares in HWL, and is one of the discretionary beneficiaries of certain discretionary trusts which hold units in unit trusts which in turn are interested in certain shares of HWL. Li Tzar Kai, Richard holds one-third of the issued share capital of two companies, which own all the shares in the trustee companies which act as trustees of such discretionary trusts and unit trusts. These trustee companies perform their functions as trustees independently without any reference to Li Tzar Kai, Richard. In view of the above, PCCW considers that Li Tzar Kai, Richard is not able to exert control or influence over the Hutchison Group.
Chung Cho Yee, Mico holds direct personal interest in a private company, which engages in property investment or development in Repulse Bay, Hong Kong.
China Netcom is a state-owned enterprise established under the laws of the PRC. It is engaged principally in the provision of telecommunications services in the PRC and is the holder of more than 70% of CNC HK, whose shares are listed and traded on the Stock Exchange. CNC HK provides fixed-line telecommunications services including fixed-line telephone services, broadband and other Internet-related services, business and data communications services, and international telecommunications services in the PRC and the Asia-Pacific region.

— 37 —

GENERAL INFORMATION

APPENDIX

6. MATERIAL ADVERSE CHANGES

The Board is not aware of any material or adverse change in the financial or trading position of the Group since 31 December 2007 (being the date to which the latest audited financial statements of the Group were drawn up.)

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the registered office of the Company at 39th Floor, PCCW Tower, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong during normal business hours on any week day (except public holidays) up to and including 30 May 2008:-

(i) the letter from the Board, the text of which is set out on pages 3 to 12 of this circular;
(ii) the letter from the Independent Board Committee, the text of which is set out on pages 13 to 14 of this circular;
(iii) the letter from ING Bank N.V., the independent financial adviser, the text of which is set out on pages 15 to 28 of this circular; and
(iv) this circular.

8. PROCEDURE FOR DEMANDING A POLL

In accordance with article 73 of the Company’s Articles of Association, a poll may be demanded

by:

(i) the Chairman; or
(ii) at least three (3) members present in person or by proxy for the time being entitled to vote at the meeting; or
(iii) any member or members present in person or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or
(iv) any member or members present in person or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

In accordance with article 74 of the Company’s Articles of Association, if a poll is demanded as aforesaid, it shall be taken in such manner (including the use of ballot or voting papers or tickets) and at such time and place, not being more than thirty days from the date of the meeting or adjourned meeting at which the poll was demanded, as the Chairman directs.

— 38 —

GENERAL INFORMATION

APPENDIX

As noted above, the resolution to be proposed in the enclosed Notice of Extraordinary General Meeting will, in any event, be taken on a poll as required under the Listing Rules.

9. EXPERT AND CONSENT

(i) The following is the qualification of the expert who has given opinions or advice contained in this circular:

Name Qualification

ING Bank N.V. A registered institution under the SFO, registered to conduct Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) regulated activities.

(ii) As at the Latest Practicable Date, ING Bank N.V. had no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(iii) As at the Latest Practicable Date, ING Bank N.V. did not have any direct or indirect interest in any assets which had been since 31 December 2007 (being the date to which the latest published audited accounts of the Group were made up) acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, the Company or any member of the Group.
(iv) ING Bank N.V. has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and reference to its name in the form and context in which they appear respectively.

10. MISCELLANEOUS

(i) The registered office of PCCW is situated at 39th Floor, PCCW Tower, TaiKoo Place, 979 King’s Road, Quarry Bay, Hong Kong.
(ii) The company secretary of PCCW is Philana W.Y. Poon, B. Comm, J.D.
(iii) The qualified accountant of PCCW is Peter Anthony Allen. He is a Fellow of both the Institute of Chartered Accountants in England and Wales and the Institute of Certified Public Accountants of Singapore.
(iv) In the event of inconsistency, the English version of this circular shall prevail over the Chinese version.

— 39 —

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [86 x 41] intentionally omitted <==

PCCW Limited 電訊盈科有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 0008)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of PCCW Limited (the “ Company ”) will be held at 12:00 p.m. on 29 May 2008 (Thursday) in the Conference Room, 14th Floor, PCCW Tower, TaiKoo Place, 979 King’s Road, Quarry Bay, Hong Kong (or as soon thereafter as the annual general meeting of the Company convened for the same place and on the same date at 11:00 a.m. shall have been concluded or adjourned) to consider and, if thought fit, approve, with or without modifications, the following resolution as ordinary resolution of the Company:-

“ THAT :

(i) the Services (other than the Group Data Services for the year ending 31 December 2008) (as more particularly described in the table set out on page 5 of the “Letter from the Board” section of the Circular (as defined below)) issued by the Company on the date hereof to its shareholders (the “ Circular ”) be and are hereby approved;
(ii) the Revised Caps (other than the 2008 Group Data Services Cap) in respect of each of the years ending 31 December 2008 and 2009 (as more particularly described in the table set out on page 5 of the “Letter from the Board” section of the Circular) be and are hereby approved;
(iii) the New Caps in respect of the year ending 31 December 2010 (as more particularly described in the table set out on page 5 of the “Letter from the Board” section of the Circular) be and are hereby approved; and
(iv) the Waiver, to be applicable on the conditions in respect of the Services to be provided for each of the years ending 31 December 2008, 2009 and 2010 (as more particularly described on pages 10 to 11 of the “Letter from the Board” section of the Circular), be and is hereby approved.”

By Order of the Board of PCCW Limited Philana WY Poon

Group General Counsel and Company Secretary

Hong Kong, 9 May 2008

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

Any member of the Company entitled to attend and vote at the EGM (or any adjournment thereof) (the “ EGM ”) is entitled to appoint another person as his proxy to attend and, on a poll, vote in his stead in accordance with the Articles of Association of the Company. A proxy need not be a member of the Company.
Where there are joint registered holders of any share, any one of such persons may vote at the EGM, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders is present at the EGM personally or by proxy, that one of the holders so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
The form of proxy and the power of attorney or other authority, if any, under which it is signed (or a notarially certified copy of such power of attorney or authority) must be deposited with the Company’s share registrars, Computershare Hong Kong Investor Services Limited, Investor Communications Centre, Rooms 1806-1807, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong no later than 48 hours before the time appointed for holding the EGM, otherwise the form of proxy shall not be treated as valid. Completion and return of the form of proxy shall not preclude members of the Company from attending and voting in person at the EGM should they so wish.

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Electronic Communications

This circular in both English and Chinese is now available in printed form and on the Company’s website at www.pccw.com.

Shareholders who have chosen to receive this circular by electronic means through the Company’s website and who, for any reason, have difficulty in receiving or gaining access to this circular will promptly upon written request to the Company’s share registrars, Computershare Hong Kong Investor Services Limited, be sent this circular in printed form free of charge.

Shareholders may change their means of receipt of the Company’s corporate communications at any time, free of charge, by notice in writing to the Company’s share registrars at:

To: PCCW Limited c/o Share Registrars Computershare Hong Kong Investor Services Limited Investor Communications Centre Rooms 1806-1807, 18th Floor, Hopewell Centre 183 Queen’s Road East, Wan Chai Hong Kong

Fax: +852 2529 6087/+852 2865 0990 Email: [email protected]

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AI assistant

Hang Lung Group Limited — Proxy Solicitation & Information Statement 2008

48869_rns_2008-05-08_69bc9b3f-df00-4cad-a932-e499f82305cb.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

PCCW Limited 電訊盈科有限公司

CONTINUING CONNECTED TRANSACTIONS WITH THE CHINA TELECOM GROUP RELATING TO THE (1) REVISION OF THE 2008 AND 2009 ANNUAL CAPS (2) SETTING OF THE NEW ANNUAL CAPS FOR 2010

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders of PCCW Limited

CONTENTS

DEFINITIONS

DEFINITIONS

PCCW Limited 電訊盈科有限公司

CONTINUING CONNECTED TRANSACTIONS WITH THE CHINA TELECOM GROUP RELATING TO THE (1) REVISION OF THE 2008 AND 2009 ANNUAL CAPS (2) SETTING OF THE NEW ANNUAL CAPS FOR 2010

INTRODUCTION

LETTER FROM THE BOARD

REVISED CAPS FOR EACH OF THE YEARS ENDING 31 DECEMBER 2008 AND 2009

LETTER FROM THE BOARD

NEW CAPS FOR THE YEAR ENDING 31 DECEMBER 2010

COMPLIANCE WITH THE LISTING RULES

LETTER FROM THE BOARD

THE SERVICES

Group Data Services

LETTER FROM THE BOARD

CTC Data Services

SI Services

LETTER FROM THE BOARD

DESPATCH OF SHAREHOLDERS’ CIRCULAR AND APPOINTMENT OF INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE BOARD

REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

WAIVER FROM STRICT COMPLIANCE WITH THE REQUIREMENTS OF RULE 14A.35(1) OF THE LISTING RULES

LETTER FROM THE BOARD

DESCRIPTION OF CONNECTED RELATIONSHIP

LETTER FROM THE BOARD

EXTRAORDINARY GENERAL MEETING

Voting at the EGM will be taken on a poll.

GENERAL

PCCW Limited 電訊盈科有限公司

CONTINUING CONNECTED TRANSACTIONS WITH THE CHINA TELECOM GROUP RELATING TO THE (1) REVISION OF THE 2008 AND 2009 ANNUAL CAPS (2) SETTING OF THE NEW ANNUAL CAPS FOR 2010

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Yours faithfully Independent Board Committee

Dr The Hon Sir Li Kwok Po, David,

LETTER FROM ING BANK N.V.

CONTINUING CONNECTED TRANSACTIONS WITH THE CHINA TELECOM GROUP RELATING TO THE (1) REVISION OF THE 2008 AND 2009 ANNUAL CAPS (2) SETTING OF THE NEW ANNUAL CAPS FOR 2010

INTRODUCTION

LETTER FROM ING BANK N.V.

BASIS OF OUR ADVICE

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Historical relationship between the Group and the CTC Group

2. Background of the Transactions

Group Data Services

CTC Data Services

SI Services

LETTER FROM ING BANK N.V.

3.2 Pricing

Group Data Services

CTC Data Services

LETTER FROM ING BANK N.V.

SI Services

Group Data Services and CTC Data Services

LETTER FROM ING BANK N.V.

SI Services

LETTER FROM ING BANK N.V.

3.4 Waiver

LETTER FROM ING BANK N.V.

4. Annual Caps

4.1 Actual aggregate value, the existing annual caps, the Revised Caps and the New Caps

LETTER FROM ING BANK N.V.

LETTER FROM ING BANK N.V.

4.2 Basis of the Revised Caps and the New Caps

4.2.1 Group Data Services

4.2.2 CTC Data Services

LETTER FROM ING BANK N.V.

4.2.3 SI Services

LETTER FROM ING BANK N.V.

CONCLUSION AND RECOMMENDATION

LETTER FROM ING BANK N.V.

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

(i) Interests of Directors in PCCW and its associated corporation

(A) Interests in PCCW

Hang Lung Group Limited Proxy Solicitation & Information Statement 2008