We operate a network which provides extensive coverage in China and connectivity to over ten countries and regions in the Asia-Pacific region. This network is technologically advanced and conducive to the introduction of the next generation network and 3G technology. This network supports a wide range of end-to-end fixed-line telecommunications services and enables customized products to be delivered to meet a variety of telecommunications needs in "real-time".

The network which we operate consists of transport networks, service networks and support and information systems. The transport networks are primarily fiber-optic based networks covering our northern and southern service regions and the Asia-Pacific countries and regions in which we operate, supplemented by satellite transmission and digital microwave links. The service networks, which support our basic and value-added telecommunications services, consist of our local access networks, including PHS networks, fixed-line telephone switch networks, Internet and data service networks and intelligent networks. The support and information systems include an operation support system and a business support system to support the reliable and effective operation of our networks. In addition, we are building an information technology network and management support system which is designed to ensure the speed and accuracy of our internal information flow.

Local access networks

We have extensive local access network coverage in our northern service region. Our local access network covers most cities, counties and villages in our northern service region. With our comprehensive local access networks, we are able to provide customized solutions to our customers. In addition, as of June 30, 2004, our PHS network had a capacity for 18.5 million lines. We continue to upgrade our existing copper line local access networks using DSL technology. We have selectively connected additional large office buildings and business centers with broadband services using LAN. As of June 30,2004,the total capacity of our DSL access ports reached 5.9 million lines.

Fixed-line telephone switch networks

A substantial portion of our fixed-line telephone networks has been built in the last decade. All of our switches are digital. The network consists of 85 local switch networks and a long distance switch network. As of June 30, 2004,the total capacity of local switches reached 79.8 million lines, and the capacity of long distance switches reached 1.5 million lines. In addition, China Netcom Group owns international gateways in Beijing, Shanghai and Guangzhou with a total capacity of approximately 187,500 lines as of June 30, 2004,and we utilize these international gateways for our international long distance telephone services. We intend to adopt advanced technology to ensure network reliability and to improve the utilization rate of our network. We have substantially completed the implementation of centralized control for our local switch networks. We are currently implementing centralized control for the long distance switch networks which we operate.

Internet and data service networks

We have developed large capacity, high quality and reliable Internet and data networks in our northern and southern service regions. Our Internet networks primarily rely on switch routers with high bandwidths. They are structured with two layers, the backbone network layer and the application layer. Our backbone networks are meshed to achieve maximum reliability and stability. A majority of the main routes in this layer has transmission capacity at 10 Gbps, or at 2.5 Gbps. As of June 30, 2004,we also had a backbone IP network with a total bandwidth of 261,887 Mbps and international outbound bandwidth of 11,126 Mbps. In addition, this network also allows us to provide services such as IP-VPN, Internet data center, e-commerce and video-on-demand services. Our data network system includes a digital data network and a frame relay and ATM network. These networks cover all cities and counties in our northern service region and substantially all cities and counties in our southern service region. In particular, our ATM network allows us to provide various access services, flexible broadband management capability and quality end-to-end services.

Support and information systems

Our operation support system provides support for the operational management and control of our service networks, as well as resource management. It enhances the overall management of our networks and helps ensure effective troubleshooting, efficient utilization of our network resources and smooth operation of our networks. Our business support system principally consists of operation management, billing, customer service and other systems. It provides comprehensive and integrated support for various aspects of our business, such as customer relationship management and tiered service for our large business customers. Our management support system enables us to achieve office automation. We are also implementing a comprehensive information management and data collection system using enterprise resource planning software.