Despite continuing to report increased revenues and profits for the recently ended fiscal quarter, restrictions on charging services to users' phone bills are forcing China's three leading Internet portals — NetEase, Sohu, and Sina — to find new growth steams.

NetEase in particular showed slower growth than it enjoyed earlier this year, reporting that revenues attributed to services sold through or SMS decreased by 20.7% to 62.7 million yuan for the three-month period that ended on September 30, compared with the previous quarter, causing the company's stock to drop dramatically, falling from US$65.85 at close of trading on Tuesday to US$54.61.

"China Mobile's suspension of collecting short message fees for us affected our SMS business." said NetEase CEO Ted Sun. "But rapid growth in the online-game business and increasing advertising revenues shored up our growth."

Prior to August, Internet users could pay for many services – including e-mail boxes – by sending an SMS message to the Website and having the fee charged to their phone bill. In early August, however, China Mobile stopped offering that payment service to Websites as some smaller sites were selling pornography and a growing number of users complained about unauthorized fees. Large sites, like NetEase, Sina and Sohu were forced to find other methods of collecting fees, such as credit cards.

Sohu recently announced that its third-quarter non-advertising revenue increased only by 6.2% to US$13.3 million, compared with the quarterly growth of 25 to 30 it has enjoyed since early last year. "That drop means the fast growth era for SMS business is gone," said Sun Weijia of Beijing-based Analysis Consulting Co Ltd. "The SMS market is close to saturation and those Internet portals will have to look for new profit engines."


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