Wireless value added services providers in China are switching their focuses, after latest shake up in the sector, which began when China Mobile implemented its user protection policy last July.
“We are developing cross media advertising services to diversify our business. We want to decrease our dependency on wireless services and China Mobile,” said Edward Liu, investor relationship director of Linktone, a wireless value added services provider listed in Nasdaq.
The company currently gets 95 percent of its revenue from providing wireless services and 70 percent from China Mobile alone. But the latest shake up in the sector is making the company to re-think about their long term direction.
Linktone wants to be an advertising company. Company CEO Michael Li talked about the bright prospect of China’s media market in conference with analysts in the latest quarter result announcement.
The company’s newest services are to offer advertisers, such as chip maker Intel, TV advertisements together with some interactive promotion services through the wireless platform. It had made a deal on interactive wireless services with Shanghai Media Group, which controls the TV and radio stations in China’s second largest city, and it has also become the exclusive advertising agents of a second tier television station in China, Qinghai Satellite Television.
Whether Linktone can revive itself via its new direction remains questionable, but its determination to find new opportunities other than China Mobile is clear.
Linktone targeted its non-wireless revenue to be 20 percent by year end and by the end of 2008, it hopes to decrease revenue from China Mobile to 50 percent, said Mr Liu.
Other wireless value added services providers are doing the same. “Hurray, another Nasdaq listed services provider, want to be a record label company,” said Dick Wei, China internet analyst of JP Morgan. The company acquired a local record company, Secular Bird, in March. Before that it has signed up local singers and published its own music albums.
“The largest wireless service provider Tom Online is developing its internet presence,” said Jin Fei, analyst of Beijing based market research firm, Analysys. Tom Online has a joint venture with U.S. based internet telephony services provider, Skype, to develop its China operation. It has also acquired online auction giant eBay’s operation in China.
“Sina and Sohu are not highly enthusiastic on wireless services anymore. Their online advertising is growing strong. Netease focused on online game,” said Mr Wei.
The only major third party service provide which remain to focus on wireless service alone is Kongzhong. “But even so, Kongzhong is focused on developing free WAP, services which does not depend on China Mobile for collecting revenue,” said Mr Wei.
Last July China Mobile issued a series of new rules for user protection. All service provides are required to send reminder to all existing subscribers on their active subscription during last August and September. Moreover, one month free trial and double confirmations are needed from users for subscribing any new monthly services.
The one month free trial has stopped since last October, while the other rules remain. The incident caused significant revenue and profit drops to the wireless value added service providers.
“I believe those policies were indeed aiming at making a healthier business environment. After all, incidents, such as, users got cheated for paying for services they do not want, are happening in China,” said Mr Jin.
“But on the other hand, it is also nature for China Mobile to want a bigger share of wallet from its subscribers,” said Mr Jin.
Value added services have become more and more important for China Mobile to sustain its growth. China Mobile’s revenue from value added business reached 69.3 billion yuan last year, up 38.1 percent from a year ago. It accounted for nearly a quarter (23.5 percent) of China Mobile’s revenue.
China Mobile is not longer solely depending on the third parties to provide value added services. They are offering those services themselves and actively promoting their own brand of services, said Mr Jin.
Mr Wei also agreed China Mobile want a bigger share of revenue on valued added service. For some services, such as interactive voice responses, China Mobile required a higher commission of 30 percent, said Mr Wei.
“In long term, I believe more revenue would go to the mobile operators and content providers (such as record labels) and less to the wireless value added services providers,” said Mr Wei.
If that is the case, is there any future for the third party services providers? “I believe eventually the sector is going to revive. After all, China mobile can not do everything on its own. It will need the third party service providers for some services,” said Mr Jin.
But different companies might revive at different rate and via different paths, said Mr Jin. For example, impact to Hurray has been the least for the current shake up. “This is because Hurray is able to switch from monthly base services to message based services. China Mobile’s policy change last summer affected mostly the monthly base services,” said Mr Jin.
Trouble for the Wireless SP
Started first half of 2001, China Mobile’s open platform for third party companies to provide value added services, such as ringtones and picture downloads, used to be a heaven for companies like Linktone and Hurray.
Copying the i-mode business model of Japan’s NTT Docomo, China Mobile launched its Monternet platform to promote wireless data services. Under the platform, the third party services providers offer content and services to mobile subscribers and China Mobile collects information fees on behalf of them through its billing system.
They pay China Mobile commissions of 15 percent of the revenues collected. The uniform service platform and billing channel that China Mobile launched allowed third party players to build profitable businesses around mobile data services, and a large number of services providers entered the sector. That, in turn, attracted more data users and generated traffic fees and billing commissions for the mobile operators. It was estimated there are about 2000 services providers in China, according to a report from International Finance Corp.
When China internet was still in its infancy, all the major internet portals, such as Sina, Sohu and Netease, used to be depending heavily on the wireless services for revenue. In the fourth quarter of 2004, wireless revenue accounted for 63 percent of Sina, China’s largest online portal.
But China Mobile’s changing policies has constantly caused setback to the third party service providers.
It happened once in late 2004 when China Mobile wanted to clean up porn content. “Porn websites were billing their customers through the wireless value added service providers,” said Mr Wei. The latest shake up happened when it issue the user protection rules last summer.
Morgan Stanley estimated the first round of regulation tightening has cause 33 percent drop in share prices for the top four wireless players. The second round, 57 percent.
Partly due to regulatory risks, mobile value-added service providers (Tom Online and Kongzhong) are trading at 30 – 50 percent discounts in earnings multiples relative to online advertising companies (Sina and Sohu), wrote Richard Ji, executive director of Morgan Stanley in a report. Kongzhong’s market capitalisation is only about US$ 180 million, while its cash on hand is about US$115 million.
Copying the i-mode business model of Japan’s NTT Docomo, China Mobile launched its Monternet platform to promote wireless data services. Under the platform, the third party services providers offer content and services to mobile subscribers and China Mobile collects information fees on behalf of them through its billing system.
They pay China Mobile commissions of 15 percent of the revenues collected. The uniform service platform and billing channel that China Mobile launched allowed third party players to build profitable businesses around mobile data services, and a large number of services providers entered the sector. That, in turn, attracted more data users and generated traffic fees and billing commissions for the mobile operators. It was estimated there are about 2000 services providers in China, according to a report from International Finance Corp.
When China internet was still in its infancy, all the major internet portals, such as Sina, Sohu and Netease, used to be depending heavily on the wireless services for revenue. In the fourth quarter of 2004, wireless revenue accounted for 63 percent of Sina, China’s largest online portal.
But China Mobile’s changing policies has constantly caused setback to the third party service providers.
It happened once in late 2004 when China Mobile wanted to clean up porn content. “Porn websites were billing their customers through the wireless value added service providers,” said Mr Wei. The latest shake up happened when it issue the user protection rules last summer.
Morgan Stanley estimated the first round of regulation tightening has cause 33 percent drop in share prices for the top four wireless players. The second round, 57 percent.
Partly due to regulatory risks, mobile value-added service providers (Tom Online and Kongzhong) are trading at 30 – 50 percent discounts in earnings multiples relative to online advertising companies (Sina and Sohu), wrote Richard Ji, executive director of Morgan Stanley in a report. Kongzhong’s market capitalisation is only about US$ 180 million, while its cash on hand is about US$115 million.
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