Business, Telecom & Wireless

New Chinese Mobile Content Rules Will Adversely Affect KongZhong's Revenue

Chinese wireless value-added services firm KongZhong Corporation has issued an update on schemes within the Chinese mobile sector following the company's press release last month in which it expected a downturn caused by a suspension of telecommunications billing in China.

KongZhong now states that over the course of the next few weeks and under the guidance of China Mobile, wireless value added services that are embedded in handsets will be required to introduce additional notices and confirmations to end-consumers during the purchase of such services. Similarly, over the course of the next few weeks, services related to SMS short codes will be required to be more tailored to the specific service offering or service partner. Previously, a single SMS code could be used for multiple service offerings or partners.

As these measures are implemented, KongZhong expects its first quarter 2010 WVAS revenues to decline by approximately 20% to 25% from third quarter 2009 levels, or to be between USD19.0 million to USD20.0 million in the three-month period ending March 31, 2010. These new revenue projections for the company's WVAS business already include the impact from the suspension of WAP billing, previously announced in its press release of December 10, 2009.

KongZhong, though, does not expect its mobile game operations to be significantly impacted, and expects no impact on its online game operations as a result of these new policies.

KongZhong entered into a definitive agreement to acquire Shanghai Dacheng Network Technology Company Ltd., a developer of 3D massively multi-player online role-playing games, in late December 2009. Based on Dacheng's 2010 net profit after tax, as calculated under US GAAP, KongZhong said it would pay up to USD80.0 million, in a mix of cash and the company's ordinary shares, to Dacheng's shareholders. KongZhong expects that the transaction will close in the first quarter of 2010.

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