UBS said its former predictions about the schedule were overoptimistic.

            Since the leaders of China's four major telecom operators all denied having received any indications about the reshuffle from the central government, the investment bank concluded that such a reshuffle seems impossible in 2007.

In view of China's two fixed operators, China Telecom Ltd. (NYSE: CHA, 0728. HK) and China Netcom Ltd. (NYSE: CN, 0906. HK), UBS said it underestimated the executive risks for them in the reshuffle and the two operators are lacking in momentum in the development.

Compared with a 2.2 percent growth of China Telecom, China Netcom saw only 0.2 percent growth in revenue in the first quarter of 2007, implying that it is suffering larger pressure from FMS (fixed-to-mobile substitution).

Though broadband service has become the main driving force for China Netcom, it cannot counteract the influence of the falling performance of traditional fixed phone service. Therefore, UBS lowered the rating for China Netcom from “Neutral” to “Underweight” but maintained its target price at 20 HK dollars. (Edited by Li Xiaoyu, )