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Tighter Control of Nation's SPs

Although May 17 is World Telecommunications Day, Chinese online bidding website Eachnet never expected that it would become the center of news reports on that day.

It was reported on May 17 that the country's biggest telecom carrier China Mobile terminated its co-operation with the Shanghai-based Eachnet, and invalidated its licence to conduct mobile value-added service and downgraded it to a regional one in Shanghai.

Although Eachnet, which is controlled by US Internet giant eBay, explained the two parties ended the contract voluntarily and it did not have the need to have the nationwide service provider (SP) licence, as most users of its mobile value-added mobile services were in Shanghai, the move was believed to be the beginning of a new SP regulatory campaign by China Mobile.

Year of transition

Together with Eachnet, co-operation with four other SPs was also stopped by the Chinese mobile operator.

Although China Mobile already released some regulations on the punishment on and rewards to SPs two years ago, it was the first time that the world's biggest mobile operator put them into practice on a large scale in May.

According to some industrial sources, China Mobile has stopped granting new national licenses to SPs.

At the same time, it may carry out punishments and reward regulations more aggressively to control the quantity of its service operators, while paying more attention to their effective use of its network.

According to the regulations, the national licenses of the three smallest providers in terms of revenues will be revoked, while the top three will get cash rewards.

China Mobile's strengthening regulatory efforts are believed to be aimed at stimulating the enthusiasm of SPs to use the mobile operator's network more effectively as well as promoting the new services launched together with China Mobile.

The mobile carrier has more than 600 service providers, but the top 10 contribute more than 60 percent of the market revenue.

At the same time, the monthly growth rate of short messaging service (SMS), a killer mobile value-added service, has dropped from 10 percent in 2002 and 2003 to the current 1.5 percent.

Intense competition has brought great difficulties for many SPs in maintaining high growth rates over the past two years, which made Netease.com Inc, Sina Corp and Sohu.com Inc bright stars on the NASDAQ in that period.

Netease, one of the biggest SPs of China Mobile, said earlier in the month that it expected its mobile value-added service revenues in the second quarter to decline by as much as 41 percent quarter-on-quarter.

China Mobile's tightening regulation of SPs will be good for both the operators, service partners and customers, industrial executives and analysts said.

"This year will be a year of transition for mobile value-added services and service providers," said Safa Rashtchy, senior technology analyst with US investment bank Piper Jaffray, in an interview in Beijing.

"One trend of transition is from SMS to 2.5G-based services and the other one is from a loosely-regulated market to a much more regulated one, which is more important."

Rashtchy believed the regulatory measures will be helpful to the top 10 providers, as the moves raised the entry level of the mobile value-added service business and some small operators will be kicked out of the game.

At the same time, both China Mobile and SPs can focus on developing and promoting new services, rather than taking illegal measures to remain competitive.

Many SPs began to offer pornographic content or charge users without their agreement as competition increased, which has led to a nationwide regulatory campaign from the Ministry of Information Industry and mobile operators one year ago.

Wang Leilei, chief executive officer (CEO) of Tom Online, supported the China Mobile's regulatory measures.

"The measures were decided according to market demand and after consultation with SPs, and we believe they represent interests of all parties in the industry."


Focus is the key to the future for Tom Online, which prospered over the past two years thanks to its mobile value-added services.

Innovations in content and marketing channels are two major strategies for the business listed on the NASDAQ and the Hong Kong Growth Enterprise Market.

Tom Online will focus on developing sport and music content this year.

After getting the right to run the official Chinese website for the 2004 UEFA European Championship in Portugal, Tom Online also announced last week that it would team up with Sport Weekly, one of the most popular sports newspapers in China, to cover the coming Olympic Games in Athens.

The company also formed an alliance with Beijing Music Radio in April. Subscribers to Tom Online's mobile services can listen to popular songs via mobile phones or vote for their favorite songs in a Chinese Billboard organized by the radio station.

Wang Leilei pointed out that expanding marketing channels are another direction for Tom Online.

It will seek other platforms to promote its mobile value-added services.

It will make more effort to develop 2.5G-based services such as multimedia messaging service (MMS), individualized ringtones, Java downloads and wireless application protocols (WAP).

Third leg

Sina Corp, which is the biggest SP of China Mobile, the largest Internet portal and the leading online advertising company in China, has decided to develop a new growth engine for its business, as its leadership in both online advertising and wireless services is well established.

"In the past two to three years, our main task was to build our advertising and mobile value-added services, but now we need to find the third pillar," said Sina CEO Wang Yan, in a recent interview.

The company's position as the leading Chinese portal and its aggressive acquisition strategy in mobile value-added business has made it one of the most important partners of China Mobile.

Sina acquired two smaller SPs MeMeStar and Crillion over the past two years for US$150 million, which has helped Sina become the biggest SP for China Mobile.

The business will closely follow the direction of China Mobile and develop new services accordingly.

Its title as China's biggest Internet company also becomes an advantage in co-operation with handset makers and TV channels and newspapers to obtain more marketing channels and content.

However, a more pressing task for Sina is to foster a new business, which may provide sustained growth over the next few years. Wang predicted that business will be interactive entertainment.

Sina launched an iGame channel in early July in cooperation with its South Korean partner NCSoft to offer online leisure games to Chinese players.

Wang said his firm will also launch the massive online role playing game Lineage 2 to the public in the summer and might charge players in the end of this year.

Besides online games, online audio and visual content may also become a natural extension of Sina's advantage from the narrow-band Internet to the broadband Internet.

The company recently began to broadcast some TV or radio programs of its partners on the Internet.

It joined forces with China Interactive Sports Co Ltd under the State Sports General Administration in June to provide interviews with Chinese champions during the Olympic Games to more than 30 TV channels in China.

Although Sina will continue to build this interactive entertainment platform and add more content to it, Wang believed instant messaging (IM) will act as a tool that connects all these services.

The biggest Chinese Internet company announced earlier this month to buy Davidhill Capital Inc, which owns the UC IM platform.

Wang said Sina will release a new product based on the IM platform in September, but he declined to elaborate.

(China Daily July 28, 2004) 

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