On November 5, China Telecom announced that it was taking action against 19 national PHS (personal handphone system) service providers for misusing their rights under cooperation agreements to barrage and charge subscribers with short messaging services (SMS).

Some of the penalties for the violations include termination of existing cooperation agreements and fines ranging from 200,000 to 3.18 million yuan (US$24,691 to US$392,593).

According to the notice, the 19 service providers, including Sohu.com Inc and Beijing Youth Daily Media Online, sent SMS content – including weather forecasts and sports results – to China Telecom mobile subscribers without the operator's permission, and charged subscribers for these services. 

"The punishment is more severe than ever, the highest fine imposed is 3.18 million yuan (US$392,593)," a source with a service provider told Beijing Time.

In July this year, China Telecom punished six service providers, suspending their PHS agreements for six months and slapped them with light fines.

According to the November 8 Beijing Time report, a Beijing-based company was given the heaviest fine of 3.18 million yuan. China Telecom received the most number of complaints about the company. China Telecom has also prevented the service provider from adding the 1.68 million yuan (US$207,679) earned in SMS charges in September to its books.

Sohu.com Inc has also been prevented from adding fees earned in September to its books. It was also ordered to pay a fine of 202,000 yuan (US$24,938).

"A service provider's profit comes from sharing SMS-generated revenue with operators, at a return rate of 50 to 90 percent. The more SMS services subscribers register for, the more profit the service provider will make, " Cheng Yiping, a consultant with CCID Consulting, said.

According to statistics from the Ministry of Information Industry's website, after the first value-added service license was issued in 1993, there were only about 9,000 service providers in China as of the end of 2004. But 2005 records show that there are now over 16,000 players in the market.

Cheng said that the quick growth of the service provider market has made operators like China Telecom uneasy. Cheng suggested that operators feel like they cannot control the market anymore. This is particularly so in cities like Shanghai and Guangzhou where some service providers make contact with subscribers who pay them directly for their services.  

To combat this, China Telecom plans to enhance the supervision of their service providers. According to the November 5 notice, all service providers with cooperation agreements with China Telecom have been asked to register their services into the operator's online Service Provider Management System (SPMS) by the end of the month. Service providers have to give details of the services provided and their charges for such services.

(China.org.cn by Zhang Yunxing November 15, 2005)