with the growth in data usage. If the quality of our service decreases due to insufficient network capacity, our business, results of operations and reputation could be materially and adversely affected. In addition, we may also be sanctioned by the regulatory authorities and may be forced to devote more capital expenditures to resolve these problems. 

## 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. 

In accordance with the articles of association of Chunghwa Telecom Workers Union, besides the chief manager of each department, all of our employees are members of our principal labor union, the Chunghwa Telecom Workers 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. Despite having taken measures to improve relations, increase cooperation and ensure mutual benefit with our labor union, such as increasing channels of communications by holding periodic labor resource review meetings and guaranteeing a labor union seat on our board of directions, we cannot assure you that we will be able to maintain a good relationship with our labor union. 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. 

## We may not realize the benefits we expect from our investments, and this 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 2011, we made capital expenditures for our domestic fixed communications of NT$16.6 billion (US$547.4 million), our mobile communications business of NT$4.3 billion (US$143.2 million), our internet business of NT$3.8 billion (US$123.7 million), our international fixed communications business of NT$1.5 billion (US$50.5 million) and our other businesses of NT$0.7 billion (US$23.1 million). 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 our customers’ demand, thus impairing our expected return from our investments. 

We cannot assure you that services enabled by new technologies we are implementing, such as HSPA/ HSPA+ mobile technology, will be accepted by the public to the extent required to generate an acceptable rate of return. In addition, we could face the risk of unforeseen complications in the deployment of these new services and technologies, and we cannot assure you that we will not exceed our estimate of the necessary capital expenditure to offer such services. 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 we are required under applicable accounting standards to recognize a charge for 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. We cannot assure you that losses related to our equity investments will not have a material adverse effect on our financial condition or results of operations. 

In 2011, we recognized an other-than-temporary impairment loss of NT$148 million (US$4.9 million) for financial assets carried at cost due to adverse changes in market conditions and operating performance that was below expectations. We may be required to record additional impairment charges in future periods, which may have a material adverse effect on our financial condition and future results of operations. 

