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Chunghwa Telecom Co Ltd – ‘F-3ASR’ on 9/22/06

On:  Friday, 9/22/06, at 5:04pm ET   ·   Effective:  9/22/06   ·   Accession #:  1193125-6-195807   ·   File #:  333-137558

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/22/06  Chunghwa Telecom Co Ltd           F-3ASR      9/22/06    5:1.4M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: F-3ASR      Automatic Shelf Registration Statement for          HTML    952K 
                          Securities of a Well-Known Seasoned                    
                          Foreign Private Issuer                                 
 2: EX-1.1      Form of Underwriting Agreement.                     HTML    245K 
 3: EX-3.1      Articles of Incorporation of the Company as Last    HTML     56K 
                          Amended on May 30, 2006.                               
 4: EX-5.1      Opinion of Baker & McKenzie.                        HTML     11K 
 5: EX-23.1     Consent of Deloitte & Touche.                       HTML      7K 

Table of Contents

As Filed with the Securities and Exchange Commission on September 22, 2006

Registration No.333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM F-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

CHUNGHWA TELECOM CO., LTD.

(Exact name of Registrant as specified in its charter)

21-3 Hsinyi Road, Section 1, Taipei,

Taiwan, Republic of China

(886-2) 2344-5488

(Address and telephone number of Registrant’s principal executive office)

CT Corporation System

111 Eighth Avenue, 13^th Floor

New York, NY 10011

(212) 894-8940

(Name, address, and telephone number of agent of service)

Copies to:

Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this registration statement as determined by market conditions.

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.  ¨

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

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

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

If this Form is a registration statement pursuant to General Instruction I.C. or a post-effective amendment thereto that shall become effective upon filing with the Securities and Exchange Commission pursuant to Rule 462(e) under the Securities Act, check the following box.  x

If this Form is a post-effective amendment to a registration statement pursuant to General Instruction I.C. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box.  ¨

CALCULATION OF REGISTRATION FEE

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

Subject to Completion. Dated September 22, 2006.

Chunghwa Telecom Co., Ltd.

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

56,434,790 American Depositary Shares

Representing 564,347,900 Common Shares

This is a global offering of American depositary shares, or ADSs, representing common shares of Chunghwa Telecom Co., Ltd., by the selling shareholders named in this prospectus. Each ADS represents ten common shares. We will not receive any proceeds from the sale of the ADSs. The ADSs are not being offered in the Republic of China. The ADSs are evidenced by American depositary receipts. The underwriters are expected to offer the ADSs in the United States through their respective selling agents.

Concurrently with this offering of ADSs, the Ministry of Transportation and Communications is separately offering up to 120,000,000 of our common shares in a public auction to be conducted solely within the Republic of China. We will not receive any proceeds from the sale of those shares.

Our ADSs are listed on the New York Stock Exchange under the symbol “CHT.” On September 21, 2006, the last reported sale price for our ADSs on the New York Stock Exchange was US$16.89 per ADS. Our common shares are listed on the Taiwan Stock Exchange under the number “2412.” On September 21, 2006, the closing price for our common shares on the Taiwan Stock Exchange was NT$54.70 per common share, which was equivalent to approximately US$16.62 per ADS at the Federal Reserve noon buying rate of NT$32.92 to US$1.00 in effect on such date.

See “ Risk Factors” beginning on page 7 to read about factors you should consider before buying ADSs.

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

The underwriters expect to deliver the ADSs through the book-entry transfer facilities of The Depository Trust Company in New York, New York on or about four business days after the date on which the offer price of the ADSs in this offering is determined.

Goldman Sachs International Morgan Stanley UBS Investment Bank

Prospectus dated                     , 2006.

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All references to “we,” “us,” “our” and “our company” in this prospectus are to Chunghwa Telecom Co., Ltd. All references to “shares” and “common shares” are to our common shares, par value NT$10 per share, and to “ADSs” are to our American depositary shares, each of which represents ten of our common shares. The ADSs are issued under the Deposit Agreement, dated as of July 17, 2003, among Chunghwa Telecom Co., Ltd., The Bank of New York and the holders and beneficial owners from time to time of American Depositary Receipts issued thereunder. All references to “Taiwan” are to the island of Taiwan and other areas under the effective control of the Republic of China. All references to “the government” or “the Republic of China government” are to the government of the Republic of China. All references to the “Ministry of Transportation and Communications” are to the Ministry of Transportation and Communications of the Republic of China. All references to “National Communications Commission” are to the National Communications Commission of the Republic of China. All references to the “Securities and Futures Bureau” are to the Securities and Futures Bureau of the Financial Supervisory Commission of the Republic of China or its predecessors, as applicable. “ROC GAAP” means the generally accepted accounting principles of the Republic of China, and “US GAAP” means the generally accepted accounting principles of the United States. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

This prospectus contains translations of certain New Taiwan dollar amounts into U.S. dollar amounts at a specified rate solely for the convenience of the reader. All such translations have been made at the noon buying rate in The City of New York for cable transfers of New Taiwan dollars as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the translations of New Taiwan dollars into U.S. dollars have been made at the noon buying rate in effect on June 30, 2006, which was NT$32.33 to US$1.00. We make no representation that the New Taiwan dollar or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or New Taiwan dollars, as the case may be, at any particular rate or at all. On September 21, 2006, the noon buying rate was NT$32.92 to US$1.00. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

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PROSPECTUS SUMMARY

In addition to this summary, you should read the entire prospectus carefully, especially the discussion of the risks of investing in our ADSs described under “Risk Factors,” and the other information incorporated by reference in this prospectus, before deciding whether to buy our ADSs.

Business

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

As our traditional fixed line business has matured and new technologies have become available, we have pursued new growth opportunities in the cellular and Internet and data services markets. We are focusing on enhancing our leading position in each of our principal lines of business, and expanding into new lines of business such as third generation cellular services. We enjoy leading positions across a number of areas:

In 2005, our revenues were NT$184.7 billion, our net income was NT$33.3 billion and our net income per share was NT$3.45.

We believe that our primary competitive strengths are:

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Our Privatization and Our Relationship with the Republic of China Government

We were established as a company on July 1, 1996 as a result of the separation of the business and regulatory functions of the Directorate General of Telecommunications of the Republic of China, or the Directorate General of Telecommunications. We were privatized in August 2005, when holdings of our common shares by the government, together with any entity majority-owned by the government, became less than 50%. As a result, under Republic of China laws, rules and regulations, we are no longer deemed to be a state-owned enterprise. When we refer to our “privatization” or our being “privatized” in this prospectus, we mean our status as a non-state-owned entity after the government reduced its ownership of our outstanding common shares, including our common shares owned by entities majority-owned by the government, to less than 50%.

The Ministry of Transportation and Communications, on behalf of the Republic of China government, currently owns approximately 42.21% of our outstanding common shares, and will own approximately 35.59% of our outstanding common shares upon the completion of this offering and the concurrent public auction of our common shares within the Republic of China. Through other government-controlled entities, the Republic of China government owns an additional 0.52% of our outstanding common shares as of August 17, 2006. Since our privatization in August 2005, the responsibility for the management of the common shares held by the Ministry Transportation and Communications has been transferred to the Government-Owned Shares Management Committee of the Ministry of Finance of the Republic of China, or the Ministry of Finance, in accordance with the Guideline for Managing and Disposing of Government-Owned Shares and the Guideline for the Establishment of the Government-owned Shares Management Committee of the Ministry of Finance. The government may, in the future, restructure its ownership of our common shares by transferring them to another government agency or state-owned entity or may change the entity that has managing authority over the portions of our common shares that are government-owned, and our relationship with the government and the Ministry of Transportation and Communications may change.

The government continues to be one of our largest customers. We transact our business with various departments and agencies of the government, as separate customers, on an arms’ length basis. The government also has the power to take actions with respect to our networks in the interests of national security.

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Corporate and Other Information

Our ADSs have been listed on the New York Stock Exchange, or the NYSE, since July 17, 2003. Our common shares have been listed on the Taiwan Stock Exchange since October 27, 2000. Our principal executive offices are located at 21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China, and our telephone number is 886-2-2344-5488. Our website is www.cht.com.tw. Information contained on our website does not constitute a part of this prospectus. The Bank of New York is the depositary for our ADSs. The depositary’s office is located at 101 Barclay Street, 22nd Floor, New York, New York, 10286, U.S.A., and its telephone number is 1-212-815-4904.

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The Offering

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Summary Financial Information

The summary income statement data and cash flow data for the years ended December 31, 2003, 2004 and 2005, and the summary balance sheet data as of December 31, 2004 and 2005, set forth below are derived from our audited financial statements included in our annual report on Form 20-F incorporated by reference into this prospectus and should be read in conjunction with, and are qualified in their entirety by reference to these financial statements and the related notes. The summary income statement data and cash flow data for the six months ended June 30, 2005 and 2006 and the summary balance sheet data as of June 30, 2006 set forth below are derived from our unaudited interim condensed financial statements included in our report on Form 6-K submitted to the U.S. Securities and Exchange Commission, or the SEC, on September 22, 2006 and incorporated by reference into this prospectus. The summary balance sheet data as of December 31, 2003 set forth below are derived from our audited financial statements not included in this prospectus. The summary balance sheet data as of June 30, 2005 set forth below are derived from our unaudited financial statements not included in this prospectus. Our financial statements are prepared in accordance with US GAAP.

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RISK FACTORS

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

Risks Relating to Our Company and the Taiwan Telecommunications Industry

We were privatized in August 2005, so we have a very limited history of operations as a non-state-owned enterprise. We may not enjoy the benefits of privatization as quickly as we anticipate or at the level that we expect.

Before we were privatized in August 2005, our business and operations were subject to extensive regulation under Republic of China laws, rules and regulations applicable to state-owned enterprises. As a result, we only have a very limited history of operations as a non-state-owned enterprise. We cannot assure you that we will be successful in achieving the benefits we expect from our privatization, such as increased management flexibility in implementing measures to improve our cost structure, efficiently operate our business and expand into new businesses in a timely manner or at all. Factors that may cause the actual benefits we may enjoy from privatization to deviate from our expectations include:

We and our largest shareholder faced opposition to offerings of our shares and ADSs in the past and could encounter similar legal or other challenges in connection with this offering and/or any future offerings of our shares.

We and our largest shareholder faced opposition to offerings of our shares and our privatization from certain interested groups in the Republic of China in the past. These opposition groups, including our labor union, took a series of legal and non-legal actions challenging the validity of, or otherwise disrupting, previous offerings of our shares. The approaches employed by these groups included holding strikes, filing legal actions in Republic of China courts, lodging complaints about members of our senior management with public prosecutors and contacting relevant authorities, including the SEC, in an effort to stop our common share and ADS sales. Moreover, the Legislative Yuan and the Control Yuan of the Republic of China also took actions against or affecting offerings of our shares in the past. For example, on January 12, 2006, the Legislative Yuan passed a resolution stating that since the Ministry of Transportation and Communications has not been in compliance with the Legislative Yuan resolutions of May 27, 2005, which attempted to stop our privatization activities, we should cease all activities relating to the sale of our common shares, and the relevant staff-in-charge of the Ministry of Transportation and Communications should be subject to administrative sanctions. In addition to these resolutions, the Legislative Yuan also passed resolutions on May 30, 2003 and June 10, 2004 in attempts to stop our privatization activities.

We cannot assure you that these interested groups, or any other third parties, will not take any legal or other actions to disrupt this offering and/or any future offerings of our shares or that any

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adverse consequence resulting from any such actions will not materially and adversely affect us or create uncertainties with respect to this offering or any future offerings of our shares, as well as the market prices of our ADSs and common shares. In addition, we cannot assure you that the Legislative Yuan, the Control Yuan or branches of the Republic of China government will not take other actions in connection with this offering and/or any future offerings of our shares that will have a material adverse effect on our business, financial condition, results of operations and prospects, as well as materially and adversely affect the trading prices for our ADSs and common shares.

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

As a telecommunications service provider in Taiwan, we are subject to extensive regulation. Prior to March 1, 2006, we were under the supervision of the Ministry of Transportation and Communications and the Directorate General of Telecommunications. On March 1, 2006, the National Communications Commission was formed in accordance with the National Communications Commission Organization Law, or Organization Law, which was intended to transfer regulatory authority over the Taiwan telecommunications industry from the Ministry of Transportation and Communications and the Directorate General of Telecommunications to the National Communications Commission.

The National Communications Commission is currently comprised of nine commissioners who have been recommended by the government and opposition political parties in the Legislative Yuan, as well as recommended by the Executive Yuan and approved by the Legislative Yuan. However, the Executive Yuan considered the composition of the National Communications Commission unconstitutional and petitioned the Grand Justices of the Republic of China, or the Grand Justices, to interpret the constitutionality of the formation of the National Communications Commission and the procedure for nominating commissioners to serve on the National Communications Commission. On July 21, 2006, the Grand Justices rendered an interpretation and held that the relevant provisions under the Organization Law as to the nomination procedures for the commissioners of the National Communications Commission were unconstitutional. However, the Grand Justices granted a grace period allowing such provisions of the Organization Law to remain in effect until December 31, 2008. Consequently, the National Communications Commission will have the authority at least until the end of 2008. In addition, the Ministry of Transportation and Communications and the National Communications Commission are in the process of allocating responsibilities between them which are not clearly provided for in the Organization Law. We cannot predict the manner in which the National Communications Commission will exercise its authority over us or the extent to which our relationship with the National Communications Commission will differ with our relationship with the Ministry of Transportation and Communications. Any changes in the regulatory environment applicable to us may adversely affect our business, financial condition and results of operations.

We have been designated by the government as a dominant provider of fixed line and cellular services within the meaning of applicable telecommunications regulations, and as a result, we are subject to special additional requirements imposed by the National Communications Commission. For example, the regulation governing setting and changing of tariffs allows non-dominant telecommunications service providers greater freedom to set and change tariffs within the range set by the government. If we are unable to respond effectively to tariff changes by our competitors, then our competitiveness, market position and profitability will be materially and adversely affected. We were subject to the Statute of Chunghwa Telecom Co., Ltd. prior to our privatization. Although we have been privatized, the Legislative Yuan has not yet abolished the Statute of Chunghwa Telecom Co., Ltd., and at this time, the Statute of Chunghwa Telecom Co., Ltd. is still applicable to us. Under the Statute of Chunghwa Telecom Co., Ltd., the Ministry of Transportation and Communications has the authority to regulate aspects of our business. Any such regulation could be burdensome or conflict with regulations

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of the National Communications Commission or may otherwise adversely affect our business, financial condition and results of operations.

The regulatory framework within which we operate may limit our flexibility to respond to market conditions, competition or changes in our cost structure. In particular, future decreases in tariff policies and rates could immediately and substantially decrease our revenues. In particular, as a Type I service provider under the Telecommunications Act, we are constrained in our ability to raise tariffs. Furthermore, the National Communications Commission is considering a number of changes to the tariff structures relating to our local telephone, cellular and leased line services. See “Recent Developments — Recent Regulatory Developments — Tariff Control and Price Cap Regulation.” We cannot assure you that any of the above changes would not have a material adverse effect on our financial condition and results of operations.

In addition, we operate our businesses with approvals and licenses granted by the government. If these approvals or licenses are revoked or suspended or are not renewed, or if we are unable to obtain any additional licenses that we may need to operate our business in the manner we desire, then our financial condition and results of operations, as well as prospects, will suffer.

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

We have faced increasing competition from new entrants in the Taiwan telecommunications market in recent years. In particular, multiple licenses to operate fixed line, cellular, paging and other services have been issued by the Republic of China government since 1996. Furthermore, three additional operators began providing fixed line services in June 2001, and licenses were granted to four undersea cable operators to engage in the undersea cable leased-circuit business in August 2001. In addition, the government awarded third generation cellular services concessions to five companies in February 2002, including two new cellular operators. Since early 2004, the government has also issued four mobile virtual network operator licenses that allow operators without a spectrum allocation to provide cellular services by leasing the network capacity and facilities from a licensed cellular service provider. The agreement as to local loop unbundling of voice was first entered into in June 2004, and we subsequently completed negotiations on full local loop unbundling of both voice and data with one fixed line operator in July 2005. While we expect competition to intensify from local loop unbundling, we believe its impact will be limited. However, the National Communications Commission is proposing to define local loop as facilities “at the bottleneck of telecommunications networks” in accordance with the Regulations Governing Fixed Network Telecommunications Businesses, which would mean that the National Communications Commission may set the tariffs we are able to charge for local loop services at cost instead of on the basis of commercial negotiations. On July 26, 2006, the National Communications Commission invited the public to make submissions relating to this proposal.

Many of our competitors are in alliances with leading international telecommunications service providers and have access to financial and other resources or technologies that may not be available to us. Moreover, as the government continues to liberalize the telecommunications market, such as through the issuance of new licenses or establishment of additional networks, our market position and competitiveness could be materially and adversely affected.

In addition, the focus of competition among cellular service providers in Taiwan has been shifting, as companies that traditionally offered second generation services, such as us, began offering third generation services, and as new third generation service providers started to enter the market. As a result, we expect competition in third generation services to continue to intensify. We may also be

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subject to competition from providers of new telecommunications services as a result of technological development and the convergence of various telecommunications services. In particular, as a result of technological innovations and other factors, we have been facing competition from alternative means of communication, including voice over Internet protocol, high-speed cable Internet service, cable telephony, e-mail and wireless services. Providers of these products and services include cable television companies, direct broadcast satellite companies and digital subscriber line resellers.

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

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

As of June 30, 2006, substantially all of our employees were members of our labor union. Since our incorporation in 1996, we have experienced disputes with our labor union on such issues as employee benefits and retirement benefits in connection with our privatization as well as the right to protest. In particular, our labor union initiated a demonstration in August 2000 to express concerns over job security after our privatization. In addition, one of our directors has been designated by the Republic of China government as a labor union representative on our board. Any deterioration of our relationship with our labor union could result in work stoppages, strikes or threats to take such an action, which could disrupt our business and operations, and materially and adversely affect the quality of our services and harm our reputation. The latest collective bargaining agreement, which was entered into between us and our labor union on January 6, 2006 and commenced in effect from March 3, 2006, will result in us having to incur higher costs in connection with the implementation of certain incentive programs, including employee skill development programs, as well as employee child education funds, company subsidized share purchases by employees, and discretionary, performance-based cash bonuses. We cannot accurately quantify the increase in costs at this time, but we expect that it may be material.

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

The Taiwan telecommunications industry has been characterized by rapid increases in the diversity and sophistication of the technologies and services offered. As a result, we expect that we will need to constantly upgrade our telecommunications technologies and services in order to respond to competitive industry conditions and customer requirements. Developments of new technologies have rendered some less advanced technologies unpopular or obsolete. For example, demand for our paging services has declined significantly since the introduction of our cellular services. As a result, we recognized an impairment charge of NT$343 million relating to our paging business in 2005. If we fail to develop, or to obtain timely access to, new technologies and equipment, or if we fail to obtain the necessary licenses to provide services using these new technologies, we may lose our customers and market share and become less profitable. For example, we began offering multimedia on demand services in March 2004. Although we were not, and are not, in compliance with some applicable ownership restrictions under the Cable Radio and Television Law of the Republic of China, or the Cable Radio and Television Law, we were nevertheless granted a permit as a fixed line operator to offer cable television services by the Government Information Office, the regulatory authority previously governing the cable television industry. However, the National Communications Commission, which has been responsible for administering regulations in this area since March 1, 2006, issued an order on August 23, 2006 requesting us to open our multimedia on demand services platform to

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non-Chunghwa Telecom HiNet subscribers and other service operators and content providers by December 31, 2006 and prohibiting us from producing our own media content. If we comply with the requests listed in this order, our multimedia on demand services will not be deemed to be a cable radio and television system as defined in the Cable Radio and Television Law, and we will not be considered a cable, radio or television system operator under the Cable Radio and Television Law with respect to this business. As a result, we will not be subject to the ownership restrictions. We are currently in discussions with the National Communications Commission regarding opening of our multimedia on demand services. However, we cannot predict the outcome of the discussions and we cannot assure you that we will no longer be subject to the ownership restrictions. As long as these restrictions continue to apply, we cannot assure you that fines will not be imposed and our cable operator license will not be revoked. Moreover, our plans to introduce voice over Internet protocol telephone services have also been delayed because the applicable regulatory authority has not issued the requisite approvals to any operator.

In addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could be significant. In particular, we have made and will continue to make substantial capital expenditures in the near future in order for us to effectively respond to technological changes, such as the continued expansion of our third generation cellular mobile network. We will also need to make additional capital expenditures relating to the launch of new businesses, including multimedia on demand, asymmetrical digital subscriber line services, fiber-to-the-building services and voice over Internet protocol services, and the implementation of a network modernization program, including the planned migration of our fixed line networks to next generation networks. To the extent these expenditures exceed our cash resources, we will be required to seek additional debt or equity financing. Our ability to obtain additional financing on favorable commercial terms will depend on a number of factors. These factors include our financial condition, results of operations and cash flows, prevailing economic conditions in Taiwan and the prevailing market conditions in the Taiwan and international telecommunications industry, the cost of financing and conditions in the financial markets, and the issuance of relevant government and other regulatory approvals.

The failure to obtain funding for our capital expenditures on commercially acceptable terms and on a timely basis, or at all, could jeopardize our expansion plans and materially and adversely affect our business, competitive position and prospects.

We may not realize the benefits we expect from our investments, which may materially and adversely affect our business, financial condition, results of operations and prospects.

We have made significant capital investments in our network infrastructure and information technology systems to provide the services we offer. In 2005, we had capital expenditures in relation to our network infrastructure and information technology systems of NT$22.9 billion. Of this amount, we had capital expenditures of NT$5.2 billion in our fixed line services, NT$4.4 billion in our cellular services, NT$12.7 billion in our Internet and data services and NT$0.6 billion in other areas. In order to continue to develop our business and offer new and more sophisticated services, we intend to continue to invest in these areas as well as new technologies. The launch of new and commercially viable products and services is important to the success of our business. We expect to incur substantial capital expenditures to further develop our range of services and products. Commercial acceptance by consumers of new and more sophisticated services we offer may not occur at the rate or level expected, and we may not be able to successfully adapt these services to effectively and economically meet customers’ demands, thus impairing our expected return from our investments.

We cannot assure you that services enabled by new technologies we implement, such as third generation cellular technology, will be accepted by the public to the extent required to generate an acceptable rate of return. In addition, we face the risk of unforeseen complications in the deployment of

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these new services and technologies, and we cannot assure you that our estimate of the necessary capital expenditure to offer such services will not be exceeded.

New services and technologies may not be developed and/or deployed according to expected schedules or may not achieve commercial acceptance or be cost effective. The failure of any of our services to achieve commercial acceptance could result in additional capital expenditures or a reduction in profitability to the extent that we are required under the applicable accounting standards to recognize a charge for the impairment of assets. Any such charge could materially and adversely affect our financial condition and results of operations.

We may also from time to time make equity investments in companies, but we cannot assure you of their profitability. For example, Chunghwa Investment Co., Ltd, a company in which we hold a 49% interest and which we account for using the equity method, suffered losses in 2004. As a result, the carrying value of Chunghwa Investment in our financial statements was reduced from NT$987 million in 2003 to NT$930 million in 2004. These losses were partially attributable to the write-off of certain short-term investments in the amount of NT$80 million that were not authorized by Chunghwa Investment, but were made by the then chairman of Chunghwa Investment, Mr. Jing-Biao Hu, who was removed from office on December 31, 2004. In addition, another of our investments, the Taipei Financial Center Corporation, in which we hold an 11.8% interest and which we account for using the cost method, has recently commenced commercial operations after completing construction of Taipei 101, which it owns and which is the tallest building in Taiwan. In 2005, we recognized a loss of NT$740 million in relation to this investment. We cannot assure you that any unprofitable equity investments will not have a material adverse effect on our financial condition and results of operations.

Our ability to deliver services may be interrupted due to a systems failure or shutdown in our networks.

Our services are currently carried through our fixed line and cellular telecommunications networks, as well as through our transmission networks comprised of optical fiber cable, microwave, submarine cable and satellite transmission links. Our networks may be vulnerable to damage or interruptions in operations due to adverse weather conditions, earthquakes, fires, power loss, telecommunications failures, software flaws, transmission cable cuts or similar events. Any failure of our networks, servers, or any link in the delivery chain that results in an interruption in our operations or an interruption in the provision of any of our services, whether from operational disruption, natural disaster, military or terrorist activity, or otherwise, could damage our ability to attract and retain subscribers and materially and adversely affect our business, financial condition, results of operations and prospects.

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

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

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developers. These applications or devices may not be sufficiently developed to support the deployment of our wireless data services. If we are unable to deliver commercially viable services based on the new technologies that we adopt, then our revenue growth and profitability, as well as our financial condition and results of operations, will be materially and adversely affected.

We depend on select personnel and could be affected by the loss of their services.

We depend on the continued service of our executive officers and skilled technical and other personnel. Our business could suffer if we lose the services of any of these personnel and cannot adequately replace them. In particular, we are not insured against the loss of any of our personnel. Moreover, we may be required to increase substantially the number of these employees in connection with any expansion, and there is intense competition for experienced personnel in the Taiwan telecommunications industry. We may not be able to either retain our present personnel or attract additional qualified personnel as and when needed. In addition, we may need to increase employee compensation levels in order to attract and retain personnel. We cannot assure you that the loss of the services of any of these personnel would not disrupt our business and operations, and materially and adversely affect the quality of our services and harm our reputation.

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

As of August 17, 2006, the Republic of China government, through the Ministry of Transportation and Communications and other government-controlled entities, owned approximately 42.73% of our outstanding common shares, and will own approximately 36.12% of our outstanding common shares after the completion of this offering and the concurrent public auction of our common shares within the Republic of China. Accordingly, the government, through its control over our board, may continue to have the ability to control our business, including matters relating to:

In addition, pursuant to the Republic of China Telecommunications Act, or the Telecommunications Act, and our articles of incorporation, our board of directors approved the issuance of two preferred shares on March 28, 2006 to the Ministry of Transportation and Communications. The Ministry of Transportation and Communications, as the holder of these preferred shares, has the right to veto any change in our name or our business and any transfer of the whole or the main part of our business or property and to act as a director and supervisor. Under our articles of incorporation, these preferred shares are non-transferable and will be redeemed by us three years after the record date of their issuance at their par value.

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

Except for the sale of ADSs to the underwriters in this offering and the concurrent public auction of our common shares within the Republic of China, we and the Ministry of Transportation and Communications have agreed with the underwriters, subject to certain exceptions, not to offer, sell,

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contract to sell, hedge or otherwise dispose of any of our common shares or securities convertible into or exchangeable for our common shares, including ADSs, for a period of 90 days after the date of this prospectus, which may be extended under certain circumstances, except with the prior written consent of the representatives of the underwriters. After the completion of this offering and the concurrent domestic share auction, approximately 35.59% of our outstanding common shares, which consist entirely of common shares that are owned by the Ministry of Transportation and Communications, are subject to these lock-up agreements. The representatives may, in their discretion, waive or terminate these restrictions. See “Shares Eligible for Future Sale” for a discussion of restrictions that may apply to future sales of our ADSs or common shares and for a discussion of exceptions to the lock-ups described above.

Sales of substantial amounts of ADSs or common shares by the government or any other shareholders in the public market, or the perception that future sales may occur, could depress the prevailing market price of our ADSs and common shares.

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

The laws of the Republic of China limit foreign ownership of our common shares. Prior to March 1, 2006, the Ministry of Transportation and Communications, as the competent authority under the Telecommunications Act, had the power to prescribe the limits on foreign ownership of our common shares. After the formation of the National Communications Commission, on March 1, 2006, the National Communications Commission replaced the Ministry of Transportation and Communications as the competent authority under the Telecommunications Act pursuant to the Organization Law. However, it is unclear whether the National Communications Commission (instead of the Ministry of Transportation and Communications) has the authority to prescribe the limits of foreign ownership of our common shares. On July 19, 2006, the Ministry of Transportation and Communications increased our foreign ownership limitation from 40% to 49% pursuant to the Telecommunications Act. Since our foreign ownership is above 40%, we could be deemed in violation of the foreign ownership limitations if it is determined that the Ministry of Transportation and Communications did not have authority to increase our foreign ownership limit to 49% as it purported to do on July 19, 2006. If we fail to comply with the applicable foreign ownership limitations, our licenses to operate some of our businesses could be revoked. Moreover, we cannot predict the manner in which the National Communications Commission will exercise its authority over us, and the National Communications Commission could decline to raise, or determine to reduce, this ownership limitation.

In addition, the Cable Radio and Television Law, under which we operate our multimedia on demand business, provides that direct foreign ownership in a cable operator may not exceed 20%, and that the combined direct and indirect foreign ownership in a cable operator may not exceed 60%. We were granted a license under this law, even though we were not, and are not, in compliance with this and other ownership restrictions. However, the National Communications Commission, which has been responsible for administering regulations in this area since March 1, 2006, issued an order on August 23, 2006 requesting us to open our multimedia on demand services platform to non-Chunghwa Telecom HiNet subscribers and other service operators and content providers by December 31, 2006. If we comply with the requests listed in this order, our multimedia on demand services will not be deemed to be a cable radio and television system as defined in the Cable Radio and Television Law, and we will not be considered a cable, radio or television system operator under the Cable Radio and Television Law with respect to this business and therefore not subject to ownership limitations. We are currently in discussions with the National Communications Commission regarding opening of multimedia on demand services.

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Since it is unclear whether it is the National Communications Commission or the Ministry of Transportation and Communications that has the authority to exercise power with respect to our foreign ownership limitations, we cannot assure you that we will not violate the limits on our foreign ownership under the Telecommunications Act, and that any adverse consequence arising from such violation will not materially and adversely affect us or this offering. Moreover, since we are unable to control ownership of our common shares or ADSs representing our common shares, and because we have no ability to stop transfers among shareholders, to force particular shareholders to sell their shares, or otherwise remedy a breach of these foreign ownership limits, we may be subject to monetary fine or lose our licenses through no fault of our own. We do not have any effective means to protect our business from this risk. In that event, our business could be disrupted, our reputation could be damaged and the market price of our ADSs and common shares could decline. These limitations may also materially and adversely affect our ability to obtain adequate financing to fund our future capital requirements or to obtain strategic partners, and alternate forms of financing may not be available on terms favorable to us or at all.

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

According to some published reports, the electromagnetic signals from cellular handsets and cellular base stations may pose health risks or interfere with the operation of electronic equipment. Although the findings of those reports are disputed, actual or perceived risks of using cellular telecommunications devices or of base stations could have a material adverse effect on cellular service providers, including us. For example, our customer base could be reduced, our customers may reduce their usage of our cellular services or we could encounter difficulties in obtaining sites for additional cellular base stations required to expand our network coverage. As a result, our cellular business may generate less revenue and our financial condition and results of operations may be materially and adversely affected. In addition, we could be exposed to potential liability for any health problems caused by cellular handsets and base stations.

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

Our ongoing financial reporting with the SEC is currently under US GAAP. Beginning in 2008, we plan to prepare our financial reporting with the SEC under generally accepted accounting principles in the Republic of China, or ROC GAAP, with reconciliation to US GAAP in accordance with the requirements of the SEC. Furthermore, before we were privatized, under laws and regulations applicable to state-owned enterprises, our financial statements prepared for reporting purposes in the Republic of China were subject to government review and audit, and the government had required adjustments to be made to our internally prepared and audited financial statements prior to approving our official government audited financial statements. These adjustments had affected our reported revenues, expenses, income before tax and income available for distribution of dividends. However, the financial statements presented in this prospectus were not subject to adjustment under the government review and audit process. Our reported financial condition and results of operations under US GAAP may differ significantly from ROC GAAP. The price of our common shares trading on the Taiwan Stock Exchange may be based on, among other things, our financial statements prepared for ongoing reporting purposes in the Republic of China, and this in turn may affect the market price of our ADSs.

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We are subject to litigation that could expose us to substantial liabilities.

We are from time to time involved in litigation, arbitration or administrative proceedings in the ordinary course of our business. See “Item 4. Information on the Company — B. Business Overview — Legal Proceedings” in our annual report on Form 20-F for the fiscal year ended December 31, 2005 incorporated by reference into this prospectus. We cannot predict the outcome of these proceedings, and we cannot assure you that if a judgment is rendered against us in any or all of these proceedings, our financial condition and results of operations would not be materially and adversely affected.

Investor confidence in us may be adversely impacted if we or our independent registered public accountants are unable to attest to the effectiveness of our internal control over financial reporting as of December 31, 2006 as required by Section 404 of the Sarbanes-Oxley Act of 2002.

We are subject to the reporting requirements of the SEC. The SEC, as directed by Section 404 of the U.S. Sarbanes-Oxley Act of 2002, adopted rules requiring U.S. public companies to include a report of management on our internal control over financial reporting in its annual report on Form 20-F, as the case may be, that contains an assessment by management of the effectiveness of the company’s internal control over financial reporting. In addition, the company’s independent registered public accountants must attest to and report on the design and operating effectiveness of and management’s assessment of the effectiveness of the company’s internal control over financial reporting. These requirements will first apply to our annual report on Form 20-F for the fiscal year ending on December 31, 2006.

We cannot assure you that our management will be able to conclude that our internal control over financial reporting is effective when the requirements of Section 404 become applicable to us. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still conclude that our internal control is not effective due to any inability to fully remedy the material weaknesses already reported to our audit committee by our independent registered public accounting firm or additional material weaknesses that may be identified during the Section 404 audit process or other reasons. Furthermore, during the course of the evaluation, documentation and attestation, we may identify weaknesses and deficiencies that we may not be able to remedy in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. If we fail to achieve and maintain effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act, we could suffer a loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our ADSs, result in lawsuits being filed against us by our shareholders or otherwise harm our reputation. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

Our actual pension obligations may be significantly higher than what we have provided for under current actuarial assumptions and may also differ from actual experience.

As of December 31, 2005, our estimated pension obligations totaled NT$1.7 billion. We have provided for our pension obligations by making contributions to our pension plans, and the fair value of our pension plan assets was NT$1.6 billion as of December 31, 2005. We intend to contribute NT$1.7 billion to our pension plans in 2006, of which contributions of NT$0.9 billion have been made in the six months ended June 30, 2006. We determined our estimated pension obligations based on a number of actuarial assumptions, including an estimated discount rate, rate of employee compensation increase and rate of return on plan assets. To the extent these assumptions are different from actual

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experience, our actual pension obligations could increase. In the event there were a significant increase in our pension obligations, such increase could have a material adverse effect on our financial condition and results of operations.

Risks Relating to the Republic of China

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

Our principal executive offices and substantially all of our assets are located in Taiwan, and substantially all of our revenues are derived from our operations in Taiwan. Accordingly, our business, financial condition and results of operations and the market price of our common shares and the ADSs may be affected by changes in Republic of China governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social developments in or affecting Taiwan which are outside of our control. For example, a mass protest movement calling for the resignation of the president of Taiwan over a series of alleged corruption scandals has begun recently and protest organizers have vowed to continue the protests until the president of Taiwan resigns. In addition, Taiwan has a unique international political status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The People’s Republic of China, or PRC, claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and cultural relations have been established during recent years between the Republic of China and the PRC, relations have often been strained. The PRC government has refused to renounce the use of military force to gain control over Taiwan. Furthermore, the PRC government passed an Anti-Secession Law in March 2005, which authorizes non-peaceful means and other necessary measures should Taiwan move to gain independence from the PRC. In February 2006, the president of Taiwan ceased activities of the country’s National Unification Council, a committee established to assist Taiwan in its efforts to reunite with the PRC. Such cessation is commonly viewed as having a detrimental effect on relations between the two countries. Past developments in relations between the Republic of China and the PRC have on occasion depressed the market prices of the securities of companies in the Republic of China. Relations between the Republic of China and the PRC and other factors affecting military, political or economic conditions in Taiwan could materially and adversely affect our financial condition and results of operations, as well as the market price and the liquidity of our securities.

Any further economic downturn or decline in the growth of the population in Taiwan may materially and adversely affect our financial condition, results of operations and prospects.

We conduct most of our operations and generate most of our revenues in Taiwan. As a result, any decline in the Taiwan economy or a decline in the growth of the population in Taiwan may materially and adversely affect our financial condition, results of operations and prospects. In recent years, the banking and financial sectors in Taiwan have been seriously harmed by the general economic downturn in Taiwan and the rest of Asia, which has resulted in a depressed property market and an increase in the number of companies filing for corporate reorganization and bankruptcy protection. Although economic conditions in Taiwan improved since 2003, the global slowdown in technology expenditures has also from time to time adversely affected the Taiwan economy, which is highly dependent on the technology industry. We cannot assure you that economic conditions in Taiwan will continue to improve in the future or that our business and operations will not be materially and adversely affected by a deterioration in the Taiwan economy.

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Any future outbreak of contagious diseases may materially and adversely affect our business and operations, as well as our financial condition and results of operations.

Any future outbreak of contagious diseases, such as severe acute respiratory syndrome or avian influenza, may disrupt our ability to adequately staff our business and may generally disrupt our operations. If any of our employees is suspected of having contracted any contagious disease, we may under certain circumstances be required to quarantine such employees and the affected areas of our premises. As a result, we may have to temporarily suspend part or all of our operations. Furthermore, any future outbreak may restrict the level of economic activity in affected regions, including Taiwan, which may adversely affect our business and prospects. As a result, we cannot assure you that any future outbreak of contagious diseases would not have a material adverse effect on our financial condition and results of operations.

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

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

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

Our corporate affairs are governed by our articles of incorporation, the Telecommunications Act, and by the laws governing corporations incorporated in the Republic of China. In addition, our corporate affairs may remain governed by the Statute of Chunghwa Telecom Co., Ltd. See “— Extensive regulation of our industry may limit our flexibility to respond to market conditions and competition, and our business may suffer.” The rights of shareholders and the responsibilities of management and the members of the board of directors of Taiwan companies are different from those applicable to a corporation incorporated in the United States. For example, controlling or major shareholders of Taiwan companies do not owe fiduciary duties to minority shareholders. As a result, holders of our common shares and ADSs may have more difficulty in protecting their interests in connection with actions taken by our management or members of our board of directors than they would as public shareholders of a United States corporation.

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

Our common shares are traded on the Taiwan Stock Exchange, which has a smaller market capitalization and is more volatile than the securities markets in the United States and many European countries. The market value of our ADSs may fluctuate in response to the fluctuation of the trading price of our common shares on the Taiwan Stock Exchange. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices and trading volumes of listed securities and there are

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currently limits on the range of daily price movements. In recent years, the Taiwan Stock Exchange Index reached a peak of 10,202.2 in February 2000 and subsequently fell to a low of 3,446.3 in October 2001. During 2005, the Taiwan Stock Exchange Index peaked at 6,575.53 on December 29, 2005, and reached a low of 5,632.97 on October 28, 2005. On September 21, 2006, the Taiwan Stock Exchange Index closed at 6,889.89. The Taiwan Stock Exchange has experienced certain problems, including market manipulation, insider trading and payment defaults. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Taiwan companies, including our ADSs and common shares, in both the domestic and the international markets.

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

Risks Relating to Ownership of Our ADSs

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

The ability to deposit shares into our ADS program is restricted by Republic of China law, under which no person or entity, including you and us, may deposit our common shares into our ADS program unless the Securities and Futures Bureau has not objected within a prescribed period following the filing with it of an application to do so, except for the deposit of the common shares into our ADS program and for the issuance of additional ADSs in connection with:

As a result of the limited ability to deposit common shares into our ADS program, the prevailing market price of our ADSs on the New York Stock Exchange may differ from the prevailing market price of the equivalent number of our common shares on the Taiwan Stock Exchange.

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

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

ADS holders will not generally be able to exercise voting rights attaching to the deposited securities on an individual basis. Under the deposit agreement, the voting rights attaching to the deposited securities must be exercised as to all matters subject to a vote of shareholders collectively in the same manner, except in the case of an election of directors and supervisors. The election of our directors and supervisors is by means of cumulative voting. In the event the depositary does not receive voting instructions from ADS holders in accordance with the deposit agreement, our chairman or his or her designee will be entitled to vote the common shares represented by the ADSs in the manner he or she deems appropriate at his or her discretion, which may not be in your interest.

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

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer you those rights unless the distribution to ADS holders of both the rights and any related securities are either registered under the U.S. Securities Act of 1933, as amended, or the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

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

Your ability to convert proceeds received from your ownership of ADSs depends on existing and future exchange control regulations of the Republic of China. Under the current laws of the Republic of China, an ADS holder or the depositary, without obtaining further approvals from the Central Bank of China or any other governmental authority or agency of the Republic of China, may convert NT dollars into other currencies, including U.S. dollars, in respect of:

In addition, the depositary may also convert into NT dollars incoming payments for purchases of common shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the common shares underlying your ADSs and become a holder of our common shares,

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you may convert into NT dollars subscription payments for rights offerings. The depositary may be required to obtain foreign exchange approval from the Central Bank of China on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights of new common shares. Although it is expected that the Central Bank of China will grant approval as a routine matter, required approvals may not be obtained in a timely manner, or at all.

Under the Republic of China Foreign Exchange Control Law, the Executive Yuan of the Republic of China may, without prior notice but subject to subsequent legislative approval rendered within ten days from such imposition, impose foreign exchange controls or other restrictions in the event of, among other things, a material change in domestic or international economic conditions which might threaten the stability of the domestic economy in Taiwan.

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

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

In addition, under the current laws of the Republic of China, you will be required to be registered as a foreign investor with the Taiwan Stock Exchange for making investments in the Republic of China securities market prior to your withdrawal and holding of common shares represented by the ADSs. You will be required to appoint a local agent in Taiwan to, among other things, open a securities trading account with a local securities brokerage firm and a bank account to remit funds, exercise shareholders’ rights and perform other functions as holders of ADSs may designate. You must also appoint a local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without the relevant registration and appointment of the local agent and custodian and the opening of a securities trading account and bank account, you will not be able to hold, subsequently sell or otherwise transfer our common shares withdrawn from the ADSs facilities on the Taiwan Stock Exchange.

Our actual financial results in 2006 may differ materially from our announced full year guidance for 2006.

On May 1, 2006, we announced our guidance for 2006 prepared in accordance with ROC GAAP and the requirements of the Taiwan Stock Exchange. In particular, we estimated that for the year ending December 31, 2006, our revenues will be NT$184.2 billion, income before income tax will be NT$55.7 billion, net income will be NT$44.2 billion and earnings per share will be NT$4.56. These projections were based on a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies, including the risks factors described in this prospectus. These projections were not prepared with a view towards compliance with published guidelines of the SEC, the U.S. Public Company Accounting Oversight Board or generally accepted accounting principles and, accordingly, you should not rely on this information. In particular, projections are

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forward-looking statements that are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. You should not regard the inclusion of the projections described above as a representation by us, or any of the underwriters, or any other person that these projections or the assumptions underlying the projections will be achieved.

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RECENT DEVELOPMENTS

Results of Operations

The following discussion should be read in conjunction with our unaudited interim condensed financial statements and related notes as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 included in our Report on Form 6-K submitted to the SEC on September 22, 2006, which is incorporated by reference into this prospectus. Our historical results discussed are not necessarily indicative of our full year performance or of results to be expected from any future period. The following discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Forward-Looking Statements in this Prospectus May Not Be Realized.”

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

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

Segment Operating Losses

Our local telephone services had operating losses of NT$4.7 billion in the six months ended June 30, 2005 and NT$7.6 billion (US$234.8 million) in the same period in 2006. See Note 16 to our financial statements included in our report on Form 6-K submitted to the SEC on September 22, 2006 incorporated by reference into this prospectus. We expect our local telephone services to continue incurring operating losses as competition in the local telephone services market further intensifies and traffic continues to migrate from fixed line services to cellular services.

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Six months ended June 30, 2005 compared with six months ended June 30, 2006

Revenues

Our revenues increased by approximately 0.8% from NT$90.7 billion in the six months ended June 30, 2005 to NT$91.4 billion (US$2.8 billion) in the same period in 2006. This increase was mainly driven by continued growth in the cellular and Internet and data businesses.

Fixed Line Services

Fixed line revenues comprised approximately 36.8% and 34.2% of our revenues in the six months ended June 30, 2005 and 2006, respectively. Our fixed line revenues decreased by 6.2% from NT$33.4 billion in the six months ended June 30, 2005 to NT$31.4 billion (US$1.0 billion) in the same period in 2006.

Local telephone services.    Our local telephone revenues decreased by approximately 6.9% from NT$20.7 billion in the six months ended June 30, 2005 to NT$19.3 billion (US$596.8 million) in the same period in 2006. This decrease was primarily due to a 12.0% decline in traffic volume from 10.7 billion minutes in the six months ended June 30, 2005 to 9.4 billion minutes in the same period in 2006. This decline in traffic volume was principally a result of the migration of non-Chunghwa Telecom HiNet subscribers from dial-up to broadband Internet access, the continued traffic migration from fixed line services to broadband and cellular services and increasing market competition. We expect these migration trends to continue as broadband and cellular services become more widely adopted in Taiwan, but we believe the rate of migration is slowing. This decline in traffic volume was partially offset by a 4.3% increase in average local usage fees, reflecting a decrease in the number of users of our discounted Internet tariff package following their migration to broadband Internet access services. Our local interconnection revenues were NT$1.5 billion in each of the six months ended June 30, 2005 and 2006.

Domestic long distance telephone services.    Our domestic long distance telephone revenues decreased by approximately 8.5% from NT$5.5 billion in the six months ended June 30, 2005 to NT$5.0 billion (US$153.9 million) in the same period in 2006. This decrease was mainly due to a decrease in traffic volume from 2.6 billion minutes in the six months ended June 30, 2005 to 2.4 billion minutes in the same period in 2006. The decrease in traffic volume was largely a result of the continued traffic migration from fixed line services to cellular services, increased competition from other fixed line operators and increased traffic migration to voice over Internet protocol services. However, the rate of migration from fixed line services to cellular services continued to decrease during this period. Our interconnection revenues also decreased as a result of a lower interconnection fee rate and more direct connections between private operators.

International long distance telephone services.    Our international long distance telephone revenues decreased by approximately 2.5% from NT$7.2 billion in the six months ended June 30, 2005 to NT$7.1 billion (US$218.2 million) in the same period in 2006. This decrease was mainly due to intense market competition and a decrease of 10.9% in the average per minute usage charge. This was partially offset by an increase of 8.3% in outgoing traffic volume from the six months ended June 30, 2005 compared to the same period in 2006. Our international settlement revenues were NT$1.6 billion in each of the six months ended June 30, 2005 and 2006.

Wireless Services

Wireless revenues comprised approximately 39.3% and 39.6% of our revenues in the six months ended June 30, 2005 and 2006, respectively. Our wireless revenues were NT$35.7 billion and NT$36.2 billion (US$1.1 billion) in the six months ended June 30, 2005 and 2006, respectively. Our cellular services grew as a percentage of our revenues from approximately 39.2% in the six months

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ended June 30, 2005 to approximately 39.6% in the same period in 2006. Our paging services as a percentage of our revenues were approximately 0.1% and less than 0.1% in the six months ended June 30, 2005 and 2006, respectively.

Cellular services.    Our cellular services revenues increased by approximately 1.7% from NT$35.6 billion in the six months ended June 30, 2005 to NT$36.2 billion (US$1.1 billion) in the same period in 2006. This increase was primarily due to an increase in revenue from monthly tariffs as a result of an increase in post-paid subscribers and an increase in outgoing traffic volume. The increase in post-paid subscribers has slowed significantly compared to prior periods as a result of market saturation and increasing competition. In addition, the overall cellular services market has experienced a slowdown in growth in terms of revenue in July and August of 2006.

Paging services.    Our paging revenues decreased by approximately 50% from approximately NT$80 million in the six months ended June 30, 2005 to approximately NT$40 million (US$1.2 million) in the same period in 2006. This decrease reflected the continued customer migration from paging to cellular services.

Internet and Data Services

Internet and data revenues comprised approximately 22.5% and approximately 24.7% of our revenues in the six months ended June 30, 2005 and 2006, respectively. Our Internet and data revenues increased by approximately 10.4% from NT$20.4 billion in the six months ended June 30, 2005 to NT$22.5 billion (US$696.4 million) in the same period in 2006.

Internet services.    Our revenues attributable to Internet services increased by approximately 11.5% from NT$15.5 billion in the six months ended June 30, 2005 to NT$17.3 billion (US$536.2 million) in the same period in 2006. This increase was largely due to an increase in the number of our asymmetrical digital subscriber line subscribers from 3.4 million as of June 30, 2005 to 3.8 million as of June 30, 2006. This increase was also due to a 6.5% increase in the number of our HiNet subscribers from 4.0 million as of June 30, 2005 to 4.2 million as of June 30, 2006. However, primarily as a result of the reduction in monthly tariff for our asymmetrical digital subscriber lines that we implemented in June 2004, the growth of our Internet services revenues has continued to slow. Calls made using our HiNet services are recorded as part of our Internet and data services and are not included in our local minutes or revenues. We include usage fees from fixed line telephone calls to access our HiNet service in our Internet revenues. Usage fees from fixed line telephone calls to access Internet service providers other than HiNet are recorded as fixed line revenues.

Data services.    Revenues from our data services increased by approximately 6.9% from NT$4.9 billion in the six months ended June 30, 2005 to NT$5.2 billion (US$160.2 million) in the same period in 2006. The higher revenues from data services in the six months ended June 30, 2006 were principally a result of an increase in the number of lines leased by wireless services operators.

Other

Our other revenues increased by 5.5% from NT$1.2 billion in the six months ended June 30, 2005 to NT$1.3 billion (US$41.0 million) in the same period in 2006. Other revenues comprised approximately 1.4% and approximately 1.5% of our revenues in the six months ended June 30, 2005 and June 30, 2006, respectively. This increase in the percentage of our revenues represented by other revenues was mainly due to an increase of revenues from our multimedia on demand services, real estate leasing and sales of third generation cellular handsets and data cards.

Operating Costs and Expenses

Our operating costs and expenses increased by 6.1% from NT$61.9 billion in the six months ended June 30, 2005 to NT$65.6 billion (US$2.0 billion) in the same period in 2006. This increase was

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primarily due to an increase in compensation expenses relating to an early retirement program conducted in March 2006. As a percentage of revenues, operating costs and expenses increased from 68.2% in the six months ended June 30, 2005 to approximately 71.8% in the same period in 2006.

Costs of Services

Costs of services include personnel expenses, international settlement costs, incentives paid to third-party dealers, spectrum usage and license fees, costs of materials and maintenance and interconnection fees among cellular operators.

Our costs of services increased by approximately 8.5% from NT$29.6 billion in the six months ended June 30, 2005 to NT$32.1 billion (US$1.0 billion) in the same period in 2006. This increase was primarily due to: (1) compensation expenses relating to an early retirement program totaling NT$1.2 billion, (2) a NT$717 million increase in incentives paid to third-party dealers, (3) a NT$895 million increase in employee bonuses, (4) a NT$739 million increase in performance-based bonuses and (5) a NT$165 million increase in stock-related compensation expenses. These increases were partially offset by a NT$1.0 billion decrease in other personnel costs and a NT$572 million decrease in pension costs in connection with a decrease in the number of our staff and the pension fund settlement that occurred in 2005 in connection with our privatization. See note 16 to our audited financial statements included in our annual report on Form 20-F for the fiscal year ended December 31, 2005, which is incorporated by reference into this prospectus.

Marketing

Our marketing expenses, which include personnel expenses, provisions for bad debt and expenses relating to advertising and other marketing-related activities, increased by approximately 7.6% from NT$9.3 billion in the six months ended June 30, 2005 to NT$9.9 billion (US$308.4 million) in the same period in 2006. This increase was principally a result of: (1) compensation expenses relating to an early retirement program totaling NT$814 million, (2) a NT$485 million increase in employee bonuses, (3) a NT$331 million increase in performance-based bonuses and (4) a NT$99 million increase in stock-related compensation expenses. These increases were partially offset by (1) a NT$352 million decrease in other personnel costs, (2) NT$253 million decrease in pension costs in connection with a decrease in the number of our staff and the pension fund settlement that occurred in 2005 in connection with out privatization, (3) a NT$174 million decrease in promotion expenses and (4) a NT$139 million decrease in provision of bad debt.

General and Administrative

Our general and administrative expenses increased by approximately 30.6% from NT$1.4 billion in the six months ended June 30, 2005 to NT$1.8 billion (US$55.1 million) in the same period in 2006. This increase was preliminary due to a NT$208 million increase in donations to non-profit organizations and a NT$197 million net increase in personnel expenses. The net increase in personnel expenses included (1) compensation expenses relating to an early retirement program totaling NT$188 million, (2) a NT$88 million increase in employee bonuses, (3) a NT$68 million increase in performance-based bonuses and (4) a NT$25 million increase in stock-related compensation expenses, which was partially offset by a NT$118 million decrease in other personnel costs and a NT$54 million decrease in pension costs in connection with a decrease in the number of our staff and the pension fund settlement that occurred in 2005 in connection with our privatization.

Research and Development

Our research and development expenses were NT$1.2 billion and NT$1.4 billion (US$42.7 million) in the six months ended June 30, 2005 and 2006, respectively. This increase was primary due to a NT$126 million net increase in personnel expenses. The net increase in personnel expenses

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included (1) compensation expenses relating to an early retirement program totaling NT$53 million, (2) an increase of NT$86 million in employee bonuses, (3) a NT$68 million increase in performance-based bonuses and (4) a NT$21 million increase in stock-related compensation expenses, which was partially offset by a NT$57 million decrease in other personnel costs and a NT$45 million decrease in pension costs in connection with a decrease in the number of our staff and the pension fund settlement that occurred in 2005 in connection with our privatization.

Depreciation and Amortization

Our depreciation and amortization expenses were NT$20.4 billion and NT$20.4 billion (US$630.7 million) in the six months ended June 30, 2005 and 2006, respectively.

Operating Costs and Expenses by Business Segment

Local telephone services

Our local telephone operating expenses, excluding depreciation and amortization, increased by approximately 13.5% from NT$15.8 billion in the six months ended June 30, 2005 to NT$17.9 billion (US$554.3 million) in the same period in 2006. This increase was primarily due to an increase in compensation expenses of NT$1.4 billion as a result of an early retirement program and higher compensation expenses of NT$0.9 billion relating to directors compensation and employee bonuses,

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which was partially offset by a decrease of NT$0.2 billion in maintenance and leasing expenses. Our depreciation and amortization expenses relating to local telephone services decreased by approximately 6.5% from NT$9.6 billion in the six months ended June 30, 2005 to NT$9.0 billion (US$277.2 million) in the same period in 2006. This decrease was mainly due to a decrease in capital expenditures which resulted in lower depreciation expenses.

Domestic long distance telephone services

Our domestic long distance telephone operating expenses, excluding depreciation and amortization, increased by approximately 2.3% from NT$685 million in the six months ended June 30, 2005 to NT$701 million (US$21.7 million) in the same period in 2006. This increase was mainly due to an increase in compensation expenses of NT$18 million relating to higher directors compensation and employee bonuses. Our depreciation and amortization expenses relating to domestic long distance telephone services were NT$365 million and NT$334 million (US$10.3 million) in the six months ended June 30, 2005 and 2006, respectively. This decrease was mainly due to decrease in capital expenditures which resulted in lower depreciation expenses.

International long distance telephone services

Our international long distance telephone operating expenses, excluding depreciation and amortization, decreased by approximately 0.4% from NT$3.6 billion in the six months ended June 30, 2005 to NT$3.6 billion (US$110.3 million) in the same period in 2006. This decrease was primarily due to a NT$0.3 billion decrease in international settlement costs, which was partially offset by an increase of NT$0.2 billion in interconnection fees and increases in compensation expenses relating to an early retirement program and costs of material. Our depreciation and amortization expenses relating to international long distance telephone services were NT$335 million and NT$297 million (US$9.2 million) in the six months ended June 30, 2005 and 2006, respectively. This decrease was primarily due to a decrease in capital expenditures which resulted in lower depreciation expenses.

Wireless Services

Our wireless operating expenses, excluding depreciation and amortization, increased by approximately 8.0% from NT$10.4 billion in the six months ended June 30, 2005 to NT$11.3 billion (US$350.5 million) in the same period in 2006. This increase was primarily due to an increase in compensation expenses of NT$0.2 billion relating to an early retirement program and an increase of NT$0.6 billion in marketing and selling expenses. Our depreciation and amortization expenses relating to wireless services increased by 10.0% from NT$3.5 billion in the six months ended June 30, 2005 to NT$3.9 billion (US$120.9 million) in the same period in 2006. This increase was primarily due to the amortization of our third generation cellular services concession of NT$0.3 billion.

Internet and Data Services

Our Internet and data operating expenses, excluding depreciation and amortization, increased by approximately 5.1% from NT$7.9 billion in the six months ended June 30, 2005 to NT$8.3 billion (US$256.6 million) in the same period in 2006. This increase was mainly due to an increase in compensation expenses of NT$0.5 billion relating to an early retirement program and an increase in compensation expenses of NT$0.3 billion relating to higher directors compensation and employee bonuses, which was partially offset by a decrease of other personnel expenses of NT$0.4 billion. Our depreciation and amortization expenses relating to Internet and data services were NT$6.2 billion and NT$6.1 billion (US$188.6 million) in the six months ended June 30, 2005 and 2006, respectively. This decrease was primarily due to a decrease in capital expenditures which resulted in lower depreciation expenses.

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Operating Income and Operating Margin

As result of the foregoing, our operating income decreased by approximately 10.6% from NT$28.8 billion in the six months ended June 30, 2005 to NT$25.8 billion (US$796.6 million) in the same period in 2006. Our operating margin decreased from 31.8% in the six months ended June 30, 2005 to 28.2% in the same period in 2006.

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

As a result of the foregoing, in the six months ended June 30, 2005 compared to the same period in 2006: (1) operating loss for our local telephone services increased by approximately 62.7% from NT$4.7 billion to NT$7.6 billion (US$234.8 million); (2) operating income for our domestic long distance telephone services decreased by approximately 10.2% from NT$4.4 billion to NT$3.9 billion (US$121.9 million); (3) operating income for our international long distance telephone services decreased by approximately 3.8% from NT$3.3 billion to NT$3.2 billion (US$98.7 million); (4) operating income for our wireless services decreased by 2.9% from NT$21.6 billion to NT$21.0 billion (US$649.5 million); and (5) operating income for our Internet and data services increased by 28.8% from NT$6.3 billion to NT$8.1 billion (US$251.2 million).

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

Other Income and Other Expenses

Our other income was NT$1.9 billion and NT$1.7 billion (US$53.9 million) in the six months ended June 30, 2005 and 2006, respectively. This decrease was primarily due to the decrease in

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foreign exchange gain related to equipment procurement from overseas vendors as well as international settlement fees. In the six months ended June 30, 2005 and 2006, other income included NT$216 million and NT$314 million (US$9.7 million) of interest income related to the purchase of commercial paper or a negotiable certificate of deposit.

Our other expenses increased by approximately 53.4% from NT$116 million in the six months ended June 30, 2005 to NT$178 million (US$5.5 million) in the same period in 2006. This increase was primarily due to an increase in foreign exchange losses.

Income Tax

Our income tax was NT$5.7 billion in the six months ended June 30, 2005, compared to NT$7.5 billion (US$233.4 million) in the same period in 2006. The increase in our income tax was primarily due to an increase in our effective tax rate. Our effective tax rate was 18.6% in the six months ended June 30, 2005 and 27.6% in the same period in 2006. The higher effective tax rate was partially due to a NT$973 million increase in retained earnings tax. The higher effective tax rate was also due to a NT$636 million decrease in the utilization of investment credits, which was due to a decrease in investment in equipment and technology that qualified for investment credits.

Net Income

As a result of the foregoing, our net income decreased by approximately 20.4% from NT$24.9 billion in the six months ended June 30, 2005 to NT$19.8 billion (US$611.7 million) in the same period in 2006. Our net margin was 27.4% in the six months ended June 30, 2005 and 21.6% in the same period in 2006.

Liquidity and Capital Resources

Liquidity

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

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

In the six months ended June 30, 2006, our net cash provided by operating activities was NT$46.0 billion (US$1.4 billion), compared with NT$37.5 billion in the same period in 2005. This increase was primarily due to an increase of NT$5.1 billion in income tax payable, a decrease of

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NT$3.3 billion in inventories, prepaid expenses and other current assets, an increase of NT$2.5 billion in trade notes and accounts payable, accrued expenses and deferred income, which was partially offset by a NT$5.1 billion decrease in net income. Historically, net cash provided by operating activities has been sufficient to cover our capital expenditures, despite our high level of capital expenditures arising from the ongoing expansion and modernization of our networks.

Our net cash used in investing activities decreased from NT$15.2 billion in the six months ended June 30, 2005 to NT$13.1 billion (US$407 million) in the same period in 2006. This decrease was largely due to a NT$14.4 billion decrease in acquisition of available-for-sale securities, which was partially offset by a NT$10.2 billion decrease in proceeds from disposal of available-for-sale securities and a NT$2.2 billion increase in acquisition of property, plant and equipment.

In the six months ended June 30, 2006, our net cash used in financing activities was NT$11.6 billion (US$358 million), which primarily reflected purchases of our common shares as part of our share repurchase program, which was conducted from February 10, 2006 to April 7, 2006.

Capital Resources

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

In future periods, we expect to have capital expenditure requirements for the ongoing expansion and upgrade of our networks combined with anticipated outlays for the introduction of new services, including our third generation cellular services. We also expect to make dividend payments on an ongoing basis. Furthermore, we may require working capital from time to time to finance purchases of materials for our maintenance and other overhead expenses. We expect to use the cash generated from operations and, to a lesser extent, debt financings primarily to meet our planned capital expenditures, planned dividend payments, repay debts and fulfill other commitments over the next 12 months.

As of June 30, 2006, our primary source of liquidity was NT$63.2 billion (US$2.0 billion) of cash and cash equivalents. As of the same date, we had short-term lines of credit available from a number of financial institutions in Taiwan, none of which had been drawn. Our only long-term loan has a five-year term with three yearly installment repayments due beginning in 2005. We are not subject to any restrictive covenants under any of our long-term loan facilities.

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

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Capital Expenditures

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