Value-added service providers look to diversify

China Mobile curbs trigger move

Linktone, Hurray and other mainland providers of mobile-telephone value-added services are looking to develop other businesses after China Mobile acted to protect its customers from unwanted fees and started to promote its own services.

Linktone, which gets 95 per cent of its revenue from providing wireless services, relies on China Mobile for 70 per cent of its sales.

'We are developing cross media advertising services to diversify our business,' said Edward Liu, an investor relationship director of Nasdaq-listed Linktone. 'We want to decrease our dependency on wireless services and China Mobile.'

Rules issued last year by China Mobile curbed the provision of unwanted services to its customers by obliging all service providers to remind their subscribers last August and September that their subscriptions were active. New customers up to October were allowed one month free trial. Since then, a double confirmation is required for new subscription to new monthly services.

The rules led to significant drops in revenue and profit for the wireless value-added service providers.

Linktone now intends to transform itself as an advertising company, with chief executive Martin Li after the most recent quarterly results highlighting the bright prospects facing the mainland media market.

The company is offering global chipmaker Intel and other advertisers packages that include television time and interactive promotion services through a wireless platform.

Linktone has made a deal to provide interactive wireless services with Shanghai Media Group, which controls the television and radio stations in the country's second-largest city. It is also the exclusive advertising agent for second-tier broadcaster, Qinghai Satellite Television.

Whether Linktone's new direction works is open to question, but its determination to find new opportunities beyond offering services through China Mobile, the mainland's biggest mobile-telephone operator, is clear.

Linktone aimed to earn 20 per cent of total revenue from non-wireless services by the end of the year and to reduce reliance on China Mobile to 50 per cent of turnover by the end of next year, Mr Liu said.

Other wireless value-added services providers are taking similar actions to diversify.

'Hurray, another Nasdaq-listed services provider, wants to be a record label company,' said Dick Wei, China internet analyst at JP Morgan.

Hurray acquired a local record company Secular Bird in March after signing up local singers and publishing its own music albums.

Meanwhile, the country's largest wireless service provider, Tom Online, 'is developing its internet presence', said Jin Fei, an analyst at market researcher Analysys.

Tom Online has a joint venture with Skype to develop the mainland operations of the Luxembourg-based internet telephony services provider. Hong Kong-based Tom has also acquired the mainland operations of online auction giant eBay.

Other firms, such as leading internet companies Sina Corp, Sohu.com and NetEase, that provide wireless value-added services as part of their business are also quitting the sector.

'Sina and Sohu are not highly enthusiastic on wireless services any more. Their online advertising is growing strongly. NetEase is focused on online games,' Mr Wei said.

The only key third-party service provider to remain focused on wireless services is Kongzhong.

'Even so, Kongzhong is focused on developing free WAP services that do not depend on China Mobile for collecting revenue,' Mr Wei said.

The Wireless Application Protocol enables access to the internet from mobile phones and other gadgets.

China Mobile was becoming less reliant on third parties to provide value-added services by promoting is own products, Mr Jin said.

Value-added services are at the same time increasingly important for China Mobile to sustain growth. The firm's revenue from value-added business rose 38.1 per cent last year to 69.3 billion yuan and accounted for nearly a quarter of total revenue.

China Mobile's new policies 'were aimed at making a healthier business environment', said Mr Jin.

'After all, incidents, such as users getting cheated for paying for services they did not want, happen in China. On the other hand, it is also natural for China Mobile to want a bigger share of the wallet from its subscribers.'

China Mobile wanted more from third-party services, Mr Wei said. For some, such as interactive voice responses, the firm required a higher commission of 30 per cent, he said.

'In the long term, more revenue will go to the mobile operators and content providers [such as record labels] and less to the wireless value-added services providers,' he said.

That puts a question mark over the future of third-party service providers.

'Eventually the sector is going to revive,' said Mr Jin. 'After all, China Mobile cannot do everything on its own. It will need the third-party service providers for some services.'