Chinese wireless service providers (SPs) suffered another major blow last week as China Mobile Communications suspended the multimedia messaging service (MMS) of Sohu.com for a year. China Mobile, the country's dominant mobile carrier, says that Sohu violated its regulations.

 

Sohu is the second NASDAQ-listed Internet company to announce suspension of some of its wireless services in the past week.

 

Sohu stated on Saturday that China Mobile had notified it that the suspension would begin on September 1 and no new service applications will be approved.

 

China Mobile sent a similar message to three other SPs on Friday.

 

All SPs are required to send messages to users and bill them via China Mobile's platform, sharing revenues paid to the carrier. Thus, China Mobile has a strong influence on SPs.

 

China Mobile said that on June 17, Sohu Online, through which Sohu conducts its MMS service, sent 1,374 WAP (wireless application protocol) PUSH messages without obtaining prior approval from China Mobile.

 

PUSH messages are often referred to as spam.

 

Mobile phone users replying to the PUSH messages subscribe to Sohu's "I Want Photo" MMS service, which costs 10 yuan (US$1.20) per month. Sohu said that 23 users subscribed the service.

 

China Mobile required Sohu to provide refunds to the 23 users and fined it 1,374 yuan (US$165.94).

 

Sohu also said that some provincial subsidiaries of China Mobile told all SPs not to charge short messaging service (SMS) subscribers over 15 yuan (US$1.81) per month and 1 yuan (12 US cents) per message from August 1.

 

Sohu's stocks sunk almost 11 percent on the NASDAQ when the news came out on Friday, to US$14.92, while the prices of its peers, Kongzhong, Linktone, Netease, Sina, and Tom Online each shed 5 to 7 percent.

 

Sina Corp, China Mobile's biggest SP, said in its quarterly report filed to the US Securities Exchange Commission on August 9 that China Mobile had suspended its interactive voice response (IVR) service.

 

The mobile operator started tightening up on its SPs last year and has intensified the campaign this year.

 

PUSH promotion messages, through which SPs send messages to many users at one time and subscribe them if they reply to the messages, are a focus of the regulatory campaign.

 

Many users have inadvertently sent reply messages to SPs and found themselves charged several yuan each month. This has led to rising complaints among China Mobile subscribers and sent some of them over to competitors China Unicom or China Netcom.

 

To appease subscribers and retain their loyalty, China Mobile said only subscriptions verified by subscribers twice are effective.

 

The policy has cut sharply into SPs' revenues from SMS, a major revenue pool for most of the NASDAQ-listed Chinese companies. Many companies, including Sohu, Sina and Netease.com, have reported declines in their text messaging service revenues in the second quarter.

 

Jim Sun, an analyst with Evolution Securities, estimates that the SMS market will fall 30 percent in the second half of the year and there will be no increase in 2005.

 

PUSH messaging, a major way for SPs to promote their new services, is also under close watch. It was reportedly rampant in the second quarter, but has slowed considerably now.

 

Sohu said on Saturday that it expects its third-quarter wireless revenues to fall US$1.5 million to US$1.8 million.

 

Sina noted that the IVR business accounted for 4 percent of its total revenues in the second quarter.

 

Jim Sun said that if all of Sina's IVR services were suspended, its profits would likely decline 4 percent this year and 10 percent in 2005. However, only a small portion of the company's IVR service content has been suspended: its Olympics service is still accessible.

 

Safa Rashtchy, senior technology analyst with US investment bank Piper Jaffray, said that this is a year of transition for the wireless value-added market, but the changes taking place now will be good in the longer term and the sector should regain healthy growth next year.

 

(China Daily August 16, 2004)