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## Operating Costs 

Operating costs include depreciation and amortization expense, personnel expenses, cost of goods sold, interconnection and service expense, costs of materials and maintenance and spectrum usage and license fees. 

Our operating costs increased by 14.0% from NT$115.3 billion in 2010 to NT$131.5 billion (US$4.4 billion) in 2011. This increase was principally a result of an increase of NT$8.1 billion (US$266.1 million) in cost of goods sold, an increase of NT$7.1 billion (US$232.9 million) in interconnection and service expenses mainly due to the change in policy for collecting the tariffs of fixed line-to-mobile phone calls, an increase of NT$1.0 billion (US$34.5 million) in maintenance and material expenses due to expansion of broadband facilities, a NT$1.0 billion (US$33.2 million) increase in corporate solution ICT costs due to the increase in revenue, partially offset by a decrease of NT$1.8 billion (US$61.1 million) in depreciation. 

## Marketing 

Our marketing expenses, which include personnel expenses, expenses relating to advertising and marketing-related activities and provision for bad debt increased by 3.1% from NT$22.5 billion in 2010 to NT$23.2 billion (US$0.8 billion) in 2011. This increase was principally a result of a NT$0.3 billion (US$11.5 million) increase in salary expenses due to headcount growth, and NT$0.2 billion (US$7.0 million) in expenses relating to human resource outsourcing services for the sales division. 

## General and administrative 

Our general and administrative expenses increased by 4.2% from NT$4.0 billion in 2010 to NT$4.2 billion (US$0.1 billion) in 2011. This increase was principally a result of new business in mobile industry in Mainland China and an increase in personnel expenses mainly due to salary increases, additional employees and bonuses. 

## Research and development 

Our research and development expenses increased by 8.5% from NT$3.2 billion in 2010 to NT$3.5 billion (US$0.1 billion) in 2011. This increase was principally a result of an increase in research professionals and engineers. 

## Operating Costs and Expenses by Business Segment 

<img src='content_image/155666.jpg'>

## Domestic fixed communications 

Our domestic fixed communications costs and expenses increased by 14.5% from NT$67.0 billion in 2010 to NT$76.7 billion (US$2.5 billion) in 2011, primarily due to an increase of NT$9.7 billion (US$321.4 million) in interconnection and service expenses mainly due to the change in policy for collecting the tariffs of fixed line-to-mobile phone calls. Since we are the market leader of the local call services, in addition to the interconnection fees, we are required to pay transition fees to the mobile operators for a period of six years. 

