Wireless Companies React to China Mobile's Latest Crackdown

Late last week, China Mobile (CHL), China Unicom (CHU) and China Telecom (CHA) announced new policy changes that are expected to be implemented in the coming months. The details (from Linktone's press release):

China Mobile (CHL)

Extension of free trial period to between 11 and 41 days, with reminders sent at the beginning and end of the trial. Previously one reminder was sent immediately after the subscription is ordered, and the free trial period was three to eleven days.

Billing reminders to be sent to existing SMS, MMS and WAP monthly subscribers regarding their subscriptions and fees being charged.

Conversion of per message-based SMS subscriptions to monthly subscriptions upon positive confirmation by the user. If no confirmation is sent, then the user's subscription is automatically cancelled.

China Unicom (CHU) & China Telecom (CHA)

Conversion of per message-based SMS subscriptions to monthly subscriptions.

How will the new regulations affect the Chinese wireless serivces companies?

1. Linktone (LTON) (from its press release)

The Company's preliminary determination is that the policy changes will likely have a material negative impact on the Company's results of operations for the remainder of 2006 principally from: (1) fewer new subscribers due to double confirmations, (2) increasing cancellation rates by existing users due to billing reminders and required positive confirmations; and (3) increased user acquisition costs. Linktone will provide further information on the impact of these changes to its business as the timeline for implementation and other specifics are clarified.

2. Hurray (HRAY) (from its press release)

Based on the above and absent any additional measures or changes in policies and regulations from the operators and the government agencies, Hurray! expects these new policies to have significant negative impact on its wireless value added services revenues for the third and fourth quarters of 2006. For the first quarter of 2006, Hurray!'s wireless revenues were $14.6 million, representing about 88% of total revenues for the quarter.

3. Tom Online (TOMO) via The Wall Street Journal

Tom Online said it is assessing the new policies but "believes the impact will be negative and significant."

4. Sohu (SOHU) via The Wall Street Journal

Sohu.com Inc., of Beijing, said it expects the new policies will lower its wireless revenue between $1.5 million and $2.5 million a quarter during the year's second half. The company reported first-quarter wireless revenue of $8 million.

5. Sina (SINA) via The Wall Street Journal

Sina Corp. said the policy changes will reduce its ability to acquire new monthly mobile value-added service subscribers and will increase so-called churn, or the rate at which customers switch vendors.

6. Kongzhong (KONG) (from its press release)

Based on the announced new measures and absent any additional measures or changes in policies and regulations of the telecommunication operators and the Ministry of Information Industry in China, KongZhong revised down its revenue projection for fiscal year 2006 to the range of $85 to $105 million. On May 18, 2006, the Company projected its fiscal year 2006 revenue to be between $110 and $115 million.

Comments

[RichardLamptey]

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[e-mail]

[RichardLamptey]

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Richard Lamptey