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 the 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. According to the Fixed Network Regulations, we are  still required to submit a report to the National Communications Commission within 20 days after our board  of directors approves the entering into, modification or termination of any contracts regarding leasing of all  business, outsourcing of operations or joint operations, the transfer of the whole or substantial part of our  business or assets; taking over of the whole of the business or assets of any other company which would have  significant impact on our operations. The National Communications Commission also amended the Wireless  Regulations and the Third Generation Mobile Telecommunications on April 3, 2009 to impose a similar  requirement requiring us to submit a report within 20 days after our shareholders approves one of the above  matters or our capital reduction. 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 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 rates could  immediately and substantially decrease our revenues. In particular, as a Type I service provider under the  Republic of China Telecommunications Act, or Telecommunications Act, we are constrained in our ability  to raise prices. For instance, the National Communications Commission adopted a three-year price reduction  plan from April 2007 to March 2010 and a second round three-year price reduction plan from April 2010 to  March 2013, resulting in a number of price reductions in the tariff structures relating to our domestic fixed  communications and mobile communications services. See “Item 5. Operating and Financial Review and  Prospects—Overview—Tariff Adjustments”. In addition, the National Communications Commission mandated  us to offer telephone services for off-shore islands, including Kinmen, Matsu, Penghu at a preferential domestic  long distance rate. We had proposed the preferential tariff plan for these areas accordingly, and it had started on  April 1, 2011. The National Communications Commission also asked us to submit a proposal by the third quarter  of 2011 for combining island-wide telephone services tariffs into one local telephone service tariff. We are still in  negotiation with the National Communications Commission about this proposal. However, we cannot guarantee  when this combination will occur and that there will not be a material impact on our business operation and  revenues if it does occur.  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 or expand our business in the manner we desire, then our financial condition  and results of operations, as well as our prospects, will suffer.  There are currently three mobile network operators that offer 2G mobile services in Taiwan. The licenses  granted by the ROC government authorities for operating 2G mobile services on the 900MHz and 1800MHz  spectrum will expire in June 2017 rather than in 2012 and 2013 as originally scheduled, according to Executive  Yuan’s announcement on November 22, 2010. The Executive Yuan also announced that the rights to use the  2G frequency spectrum will be sold at an auction for technology neutral usage in 2015. If we are unable to  successfully acquire the rights to use the frequency spectrum that we need for our future business operations,  our business prospects and future results of operations may be adversely affected which as a result may lead to a  material impact on our business revenues.  If we are unable to obtain and maintain the licenses to operate our mobile services business, our business  prospects and future results of operations would be adversely affected.  7 PART I