Mon, Jul 19, 2004 - Page 10 News List

Text messaging in China faces tough times in the future

MOBILE PHONES Many have made a killing as cost-conscious Chinese have sent countless messages, but several signs indicate the good times are about to end

AFP , BEIJING

China's Internet portals are likely to face tough times as short-messaging services (SMS) gradually return lower profits than they have during the SMS heydey that has been under way for the last few years, state media said yesterday.

From stricter government regulations to lower charges for voice calls, the hitherto lucrative SMS business is facing multiple dangers in the months ahead, the China Business Weekly reported.

"Searching for new growth areas is a tough challenge for Web portals," said Xie Wen, the head of a financial information Website.

A first warning came this month when Nasdaq-listed NetEase.com said that its second-quarter wireless value-added revenue would fall up to 41 percent from the first quarter to US$4 million on weak SMS sales.

Other top portals like Sohu.com and Sina Corp. are also expected to report less than red-hot business, according to the paper.

China has 300 million cost-conscious mobile phone users, many of whom have in the past taken advantage of the fact that a short text message costs only 0.1 yuan (US$0.01).

This explains why 240 billion short messages were sent last year, a whopping 170 percent increase over the year before.

However, this year's growth is likely to be much less impressive -- estimated at about 25 percent.

"It's unlikely the SMS market will witness in the future the explosive growth rates recorded in the past few years," said Liu Lei, an analyst.

Partly to blame are new rules aimed at weeding out pornographic, fraudulent and illicit messages, according to the paper.

Calls for greater official attention to the industry have also been fueled by user complaints that they have been charged for entire months even though they have only used SMS services once, or haven't used the services at all, the paper said.

"Such irregularities reflect the loose supervision over the SMS market," said Xie.

While government supervision is becoming more stringent, the SMS market is also being battered by other trends.

These trends include a gradual decline in the price of mobile tariffs.

In many parts of the country, mobile tariffs have fallen to as low as 0.2 yuan per minute, hollowing out much of the cost advantage that SMS has enjoyed in the past.

Completing the list of the industry's woes, cellular operators may try to renegotiate their revenue-sharing schemes with Web sites to get a bigger piece of the pie.

Currently, top cellular operator China Mobile keeps 15 percent of the revenue from its scheme, with the other 85 percent left to the Web sites.

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