The old saying of putting all eggs in one basket cuts both ways
for Chinese Internet portals Sina Corp, NetEase.com, Sohu.com and
Tom.com.
While income from mobile phone short messaging service (SMS)
lifted the companies out of losses and led to soaring stock prices
on the NASDAQ, any change in China's mobile telecom market may rock
the boat for the companies.
Among the warning signals are China Mobile's recent policy
changes towards its service providers (SPs); and the slow-down of
mobile telecom subscribers in the first half.
The heavy reliance of the four Chinese Internet portals on
revenue sharing with China Mobile and China Unicom has been a major
risk in many people's eyes.
Revenues generated from SMS to mobile phone users via Sina's
website accounted for about 44 percent of the company's total of
US$26 million, while the proportion for NetEase.com was about 41
percent.
However, China Mobile's requirement in June that all SMS
websites stop alliances with other website operators which are not
the telecom carrier's SPs is seen as hurting revenues.
The move is believed to be aimed at pornographic content on
smaller websites, which are also accused of often charging users
without giving sufficient information.
Although most SPs have had the alliances for only a few months;
and revenues from their minor allies are quite small, China
Mobile's move is significant.
"The termination of website alliances will cause some losses to
us, but I think the stricter regulation from the operator's side is
helpful to the long-term development of the industry," said Wang
Xin, a vice-president of Sina Corp said.
Sina, NetEase and Sohu have since stopped all such alliances
accordingly.
Another directive from the country's biggest mobile carrier was
that all SPs stop charging users for any content other than SMS,
ringtones and picture downloads.
A major area of complaints from consumers was they are charged
for some content they do not actually use or know.
For example, Lao Qian, a mobile phone user in Beijing, received
a short message which said: "You have successfully subscribed to
the movie video on demand (VOD) on our website. Please confirm your
identity on our website and do not reveal your password to other
people."
The result was that Lao Qian had to pay 30 yuan (US$3.62) per
month, although he did not watch any movie on that website.
If the termination of website alliances and SMS payment has only
a minimal impact on the Internet companies, one concern is a
possible change in revenue sharing.
With the increase of SMS incomes and good performance on the
stock market of Sina, Sohu and NetEase, some insiders said China
Mobile has been trying to change the revenue-sharing proportion
with SPs.
Currently, Chinese Internet users spend 0.10 yuan (1.2 US cents)
for every text message sent to mobile phone users and 0.90 yuan (11
US cents) for a multimedia message.
SPs like Sina get 85 percent of the money for the content, while
mobile carriers get the rest.
Although executives from China Mobile declined to comment on
changes in the revenue structure, it is the biggest risk that the
major portals face, according to a report by US Bancorp Piper
Jaffray, which is said to be the only US investment banking firm
covering the three NASDAQ-listed Chinese Internet businesses.
At the same time, China Mobile is also trying to bundle the
content of its SMS platform Monternet with mobile phone makers.
Panasonic and Sony Ericsson have already pre-set Monternet into
their general packet radio switching (GPRS) mobile phones which
have Internet connection. China Mobile is also talking with other
makers on similar deals.
The slowdown of the growth of Chinese mobile subscribers is a
wider danger to the Internet portals.
According to the statistics from the Ministry of Information
Industry, Chinese mobile telecom operators added 33.45 million new
subscribers in the first seven months; and the monthly average was
4.78 million, compared with 5.06 and 5.07 million in 2001 and 2002
respectively -- which could dampen SMS growth.
Safa Rashtchy, principal and senior technology analyst with
Piper Jaffray, downgraded the risks posed by China Mobile's policy
changes after a visit to the mainland last week.
"A major outcome of my visit is that I think the risk we assumed
from mobile companies is much smaller," he said in an interview
with China Daily.
While the termination of website alliances may have some impact
on the Chinese portals in the third quarter, it won't dampen their
growth prospects.
"US investors do not really understand the China market and how
big it is here," Rashtchy said.
Michael Yin, director and chief analyst of Ploutos Investment
Consulting (Shanghai) Ltd, which focuses on China's Internet
industry, agreed with Rashtchy.
"With their influence well established in China and their role
as China-concept stocks on the NASDAQ, China Mobile will be careful
in handling relations with Sina, Sohu, and NetEase," said Yin
Sing Wang, chief executive officer (CEO) of Tom.com, said the
estimated revenues of China Mobile would be around 170 billion yuan
(US$20.53 billion) with 9 billion yuan (US$1.1 billion) from short
messages; of which only about one-tenth is expected to go to SPs
including his company -- the mobile carrier does not need to fight
with its partners.
Besides, Japanese telecom operator NTT Docomo, an example of SMS
success, has more than 6,000 SPs, because it cannot do all the work
in the industrial chain by itself, while China Mobile has about 600
SMS content providers.
According to NetEase CEO Ted Sun, his company has renewed the
agreement on SMS with China Mobile; and some terms in the new
version are even more favourable to the portal.
As to the slowdown of mobile subscriber growth, executives and
analysts were not unduly worried.
"In the near term, the decline will not be very sharp and we
still need to wait and see the trend," said Michael Yin.
Sing Wang with Tom.com cited the example of Japan to show the
potential of the SMS market.
"In Japan, about 50 percent of mobile phone users send short
messages, but in China the ratio is only about 10 percent according
to my estimation, so there is a large difference there," Sing
said.
He believes that with the price cuts of mobile phones and
subscription fees, many middle school and even primary school
students might start using mobile services, especially short
messages, which are "cheap and cool".
Tom's CEO pointed out that the advancement of technologies will
also bring more short message applications and further expand its
use.
He revealed that the multimedia short messaging service (MMS),
started by China Mobile on April 1, would be another
opportunity.
The Hong Kong-based multimedia platform said its MMS subscribers
has reached 200,000, about half of the total of China Mobile; and
they send an average of 20,000 messages a day.
According to Shanghai Research Consulting Co Ltd, an Internet
market research firm, the web-based short message market would
reach 2.77 billion yuan (US$335 million) this year, compared with
920 million yuan (US$111 million) last year.
The market will further expand to 4.43 billion yuan (US$535
million) next year and 10.6 billion yuan (US$1.28 billion) in 2006
with the popularity of MMS and increase of number of users.
(China Daily HK Edition September 24, 2003)