3G timing remains unclear
􀂄 WCDMA and CDMA2000 becomes 3G standards in China .The Ministry of Information Industry (MII) just announced WCDMA and CDMA2000 as 3G standards in China, after they announced TD-SCDMA as the first 3G standard in January 2007.

􀂄 No indication on the timing of 3G
We believe this announcement does not indicate that 3G licenses will come out soon in China, but at most means that China could have all of the three 3G standards (TD-SCDMA, WCDMA, and CDMA2000), which is well known on the market.

􀂄 TD-SCDMA to be the biggest bottleneck
We believe TD-SCDMA will continue to be the biggest bottleneck of the 3G decision in China. We expect to gain more clarity after the current TD-SCDMA network rollout in 10 cities finish by the end of October this year.

􀂄 3G to come later and smaller in China
We expect the earliest timing for Chinese government to issue 3G licenses is H208, and there is a possibility that it might not occur even then. We believe the Chinese government has minimal incentive to push forward 3G rollout given the lack of market demands and immaturity of home-grown TD-SCDMA.

Statement of Risk

We believe tariff competition is the main risk factor in the Chinese mobile market and could escalate as the government grants 3G licences and introduces new competitors. In our view, China Mobile’s dominant position in the mid- to high-end customer segment is a particularly weak spot for the company. We assign a predictability level of 2 to reflect these risks. We also assign a predictability level of 2 on China Unicom to reflect its vulnerability under competition pressure.

We believe mobile substitution and 3G uncertainties are the two major risk factors for the fixed-line operators on China: 1) the top line growth will likely come under substantial pressure, a result of accelerating mobile substitution; 2)，we think the fixed-line operators could face execution risk when rolling out TDSCDMA, which could reduce its competitiveness. Our predictability level of 1 for China Telecom reflects its dominant market position and the stability of its operating cash flow. Our predictability of 2 for China Netcom reflects its smaller scale and higher exposure to competition risk.

 Analyst Certification

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part  of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

 Required Disclosures
This report has been prepared by UBS Securities Asia Ltd, an affiliate of UBS AG (UBS). For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures.
UBS Investment Research: Global Equity Ratings Definitions and Allocations

1: Percentage of companies under coverage globally within this rating category.
2: Percentage of companies within this rating category for which investment banking (IB) services were provided within the past
12 months.
Source: UBS. Ratings allocations are as of 31 March 2007.

KEY DEFINITIONS
Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12
months.
Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a
forecast of, the equity risk premium).
Predictability Level The predictability level indicates an analyst’s conviction in the FSR. A predictability level of ’1’ means that
the analyst’s estimate of FSR is in the middle of a narrower, or smaller, range of possibilities. A predictability level of ’2’ means
that the analyst’s estimate of FSR is in the middle of a broader, or larger, range of possibilities.
Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock’s price target and/or rating are
subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation.

EXCEPTIONS AND SPECIAL CASES
US Closed-End Fund ratings and definitions are: Buy: Higher stability of principal and higher stability of dividends; Neutral:
Potential loss of principal, stability of dividend; Reduce: High potential for loss of principal and dividend risk.
UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management,
performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount;
Reduce: Negative on factors such as structure, management, performance record, discount.
Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review
Committee (IRC). Factors considered by the IRC include the stock’s volatility and the credit spread of the respective company’s
debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating.
When such exceptions apply, they will be identified in the Companies Mentioned or Company Disclosure table in the relevant
research piece.

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.

Global Disclaimer

This report has been prepared by UBS Securities Asia Ltd or an affiliate thereof (“UBS”). In certain countries UBS AG is referred to as UBS SA.

This report is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient and does not constitute a representation that any investment strategy is suitable or appropriate to a recipient’s individual circumstances or otherwise constitute a personal recommendation. It is published solely for informational purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except with respect to information concerning UBS AG, its subsidiaries and affiliates, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. The report should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of using different assumptions and criteria.

Research will initiate, update and cease coverage solely at the discretion of UBS Investment Bank Research Management. The analysis contained herein is based on numerous assumptions.

Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and otherconstituencies for the purpose of gathering, synthesizing and interpreting market information. UBS is under no obligation to update or keep current the information contained herein. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, groups or affiliates of UBS. The compensation of the analyst who prepared this report is determined exclusively by research management and senior management (not including investment banking). Analyst compensation is not based on investment banking revenues, however, compensation may relate to the revenues of UBS Investment Bank as a whole, of which investment banking, sales and trading are a part.

The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates and other market conditions. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither UBS nor any of its affiliates, nor any of UBS’ or any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. Additional
information will be made available upon request.

For financial instruments admitted to trading on an EU regulated market: UBS AG, its affiliates or subsidiaries (excluding UBS Securities LLC and/or UBS Capital Markets LP) acts as a market maker or liquidity provider (in accordance with the interpretation of these terms in the UK) in the financial instruments of the issuer save that where the activity of liquidity provider is carried out in accordance with the definition given to it by the laws and regulations of any other EU jurisdictions, such information is separately disclosed in this research report.

United Kingdom and the rest of Europe: Except as otherwise specified herein, this material is communicated by UBS Limited, a subsidiary of UBS AG, to persons who are market counterparties or intermediate customers (as detailed in the FSA Rules) and is only available to such persons. The information contained herein does not apply to, and should not be relied upon by, private customers. UBS Limited is authorised and regulated by the Financial Services Authority. France: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities France SA. UBS Securities France S.A. is regulated by the Autorité des Marchés Financiers (AMF). Where an analyst of UBS Securities France S.A. has contributed to this report, the report is also deemed to have been prepared by UBS Securities France S.A. Germany: Prepared by UBS Limited and distributed by UBS Limited and UBS Deutschland AG. UBS Deutschland AG is regulated by the
Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin). Spain: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities Espa a SV, SA. UBS Securities Espa a SV, SA is regulated by the Comisión Nacional del Mercado de Valores (CNMV). Turkey: Prepared by UBS Menkul Degerler AS on behalf of and distributed by UBS Limited. Russia: Prepared and distributed by the Moscow Representative Office of UBS Cyprus Moscow Limited. Switzerland: Distributed by UBS AG to persons who are institutional investors only. Italy: Prepared by UBS Limited and distributed by UBS Limited and UBS Italia Sim S.p.A.. UBS Italia Sim S.p.A. is regulated by the Bank of Italy and by the Commissione Nazionale per le Società e la Borsa (CONSOB). Where an analyst of UBS Italia Sim S.p.A. has contributed to this report, the report is also deemed to have been prepared by UBS Italia Sim S.p.A.. South Africa: UBS South Africa (Pty) Limited (Registration No. 1995/011140/07) is a member of the JSE Limited, the South African Futures Exchange and the Bond Exchange of South Africa. UBS South Africa (Pty) Limited is an authorised Financial Services Provider. Details of its postal and physical address and a list of its directors are available on request or may be accessed at http:www.ubs.co.za. United States:

Distributed to US persons by either UBS Securities LLC or by UBS Financial Services Inc., subsidiaries of UBS AG; or by a group, subsidiary or affiliate of UBS AG that is not registered as aUS broker-dealer (a “non-US affiliate”), to major US institutional investors only. UBS Securities LLC or UBS Financial Services Inc. accepts responsibility for the content of a report prepared by another non-US affiliate when distributed to US persons by UBS Securities LLC or UBS Financial Services Inc. All transactions by a US person in the securities mentioned in this report must be effected through UBS Securities LLC or UBS Financial Services Inc., and not through a non-US affiliate. Canada: Distributed by UBS Securities Canada Inc., a subsidiary of UBS AG and a member of the principal Canadian stock exchanges & CIPF. A statement of its financial condition and a list of its directors and senior officers will be provided upon request. Hong Kong:
Distributed by UBS Securities Asia Limited. Singapore: Distributed by UBS Securities Pte. Ltd or UBS AG, Singapore Branch. Japan: Distributed by UBS Securities Japan Ltd to institutional investors only. Australia: Distributed by UBS AG (Holder of Australian Financial Services Licence No. 231087) and UBS Securities Australia Ltd (Holder of Australian Financial Services Licence No. 231098) only to “Wholesale” clients as defined by s761G of the Corporations Act 2001. New Zealand: Distributed by UBS New Zealand Ltd.

The disclosures contained in research reports produced by UBS Ltd shall be governed by and construed in accordance with English law.