China Mobile shuts SMS transaction platform - News Analysis

Telecom Asia, Sept, 2003 by Kaiser Kuo

New regulations handed down by China Mobile have suspended the use of SMS to bill for Internet content and services such as email boxes, game subscriptions, software, video and music downloads. Payment through SMS, in which pass codes for Internet content and services are sent to subscribers via their phones and billed to their monthly mobile bill through China Mobile's Monternet payment platform, has become a popular means of settling accounts in China, where credit-card penetration remains extremely low.

The new ruling was widely reported in the Chinese press last month, but China Mobile officials have kept quiet about the ban and have not offered an official explanation. The Shanghai Morning Post quoted an unnamed China Mobile official who said this reticence was due to fear of an adverse effect on the stock prices of Nasdaq-listed Chinese Internet portals Sina, Sohu, and Netease. All three of the leading portals, as well as numerous other popular Websites and email providers, make use of SMS to handle payments. SMS has become a leading revenue source for the portals. Sohu.com, for example, earned 60% of its Q2 2003 revenue from SMS, though only a small fraction of that income was from billing for online content affected by the ban.

China's leading mobile value-added service providers, including the three major portals, were informed of the decision by China Mobile in a weekend retreat in the city of Dalian on 19-20 July, says Carter Agar, chief strategy officer of Shanghai-based SMS provider Linktone. "[China Mobile] basically told us,'Look, we've built this great business together, but there's a problem, and we're going to have to ask you to stop using SMS to bill for anything except mobile content.'"

Pressure from bank

"We have no choice but to comply," said Sina.com deputy general manager Mont Gu. Sina stopped SMS billing for its high-capacity VIP email boxes, the only non-mobile service for which it was using SMS to bill.

China Mobile officials portrayed the ban as part of broader efforts to curb downloads of pornographic and violent material, says Agar. But according to Eric Rosenblum, CEO of mobile payment solutions provider Sumit Mobile, the pressure for the ban originates with the People's Bank of China.

"There's been a lot of wariness of China Mobile moving into financial services," says Rosenblum. "China Mobile is essentially extending credit, charging a high service fee to providers for highmargin products like ringtones, icons and horoscopes. They would never do this for books of CDs, of course. It's things like software, Internet content, and email subscriptions that have been the gray area."

Hardest hit will be small regional SMS value-added providers who have entered into alliances with software and Web companies to provide billing for content like anti-virus software and MP3 downloads. Other firms say they will seek alternative means of billing.

Email provider 263.com, for example, now offers free email boxes to user who sign up for email notification services via SMS. The notifications, which are not banned under the new regulations, will still be charged to users' mobile bills.