China Mobile suspends Sohu MMS service
By Wen Dao (China Daily)
Updated: 2004-08-16 08:55

Chinese wireless service providers (SPs) suffered another major blow, as Sohu.com Inc said its multimedia messaging service (MMS) would be suspended by China Mobile Communications Corp for one year due to violations of the country's dominant mobile carrier's regulations.

Sohu said on Saturday that China Mobile notified the NASDAQ-listed Chinese Internet company that Sohu's MMS service will be suspended for one year from September 1 and no new service applications will be approved.

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

All SPs need to send messages to users and bill them via China Mobile's platform and share revenues paid to the carrier, so China Mobile has a strong influence on SPs.

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

Mobile phone users can reply to the PUSH messages and subscribe to Sohu's "I Want Photo" MMS service, which costs 10 yuan (US$1.2) per month. Sohu said 23 users subscribed the service.

China Mobile required Sohu to refund the 23 users and fined Sohu 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.

After the news came out, Sohu's stocks fell by almost 11 per cent on the NASDAQ on Friday to US$14.92, while the prices of its peers, Kongzhong, Linktone, Netease, Sina, and Tom Online shed 5-7 per cent.

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

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

The mobile operator, which started to tighten regulations on its SPs last year, have this year stepped up efforts.

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

Many users operated their phones by mistake, sent reply messages to SPs and were charged several dollars a month, which led to rising complaints amongst China Mobile's subscribers and forcing some of them to go over to its competitors China Unicom or China Netcom.

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

The rule has led to sharp decreases of SPs' revenues from SMS, a major revenue pool for most of the NASDAQ-listed Chinese companies, and many companies including Sohu, Sina and Netease.com Inc reported declines in their text messaging service revenues in the second quarter.

Jim Sun, an analyst with Evolution Securities, estimated that the SMS market will fall by 30 per cent 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.

A source with an SP that was also punished by China Mobile on Friday said the PUSH messages were rampant in the second quarter, but it is much quieter now.

Sohu said on Saturday that its wireless revenues in the third quarter will fall by US$1.5 million to US$1.8 million, as forecast in its guide to the quarter.

Sina also said the IVR business accounted for 4 per cent of its total revenues in the second quarter.

Sun with Evolution Securities said that if all IVR services of Sina were suspended, it would lead to a 4 per cent decline in Sina's profits this year and 10 per cent fall in 2005.

But he said that it seems only a little of Sina'a IVR service content was suspended and its ongoing Olympics IVR service was still accessible, so the impact on Sina might not be very significant.

Safa Rashtchy, senior technology analyst with US investment bank Piper Jaffray, said that it would be a year of transition for the wireless value-added market, but it would be good for the industry to regain its healthy growth next year.

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