Commentary

Chinese Wireless Tech Companies Should Start Selling Soybeans

Tech Market WatchBy Perry Wu
In 2002, the Chief Technology Officer at my company in Beijing was complaining that he was constantly receiving wireless text messages (SMS) from Sohu.com (SOHU), and phone calls to Sohu.com and China Mobile (CHL) to end the messages resulted in nothing happening. Worst, he was being charged a small monthly fee to receive these unwanted messages.

Last week China Mobile finally added more consumer-friendly features to its services. Beginning July 10, for any new subscriptions to Wireless Value-Added Services (WVAS) including short messaging services (SMS), multimedia messaging services (MMS), and wireless application protocol (WAP), China Mobile will send out two reminder notices to the customers prior to charging subscription fees in the customers' monthly mobile phone bills. Customers will also get a free trial period of 11 to 41 days.

If only these safeguards existed four years ago for my colleague in the Kafka ordeal.

So what effect did China Mobile's announcement have on WVAS providers? Companies like Tom.com (TOMO) rightfully saw their stock plummet by about 20%, KongZhong (KONG) had an 11% slump and Sohu.com dropped almost 9%.

Fast forward through five years of wireless mayhem in China and a few things should now be abundantly clear.

WVAS providers in China will always get the short end of the stick. They are in a losing battle with China Mobile and China Unicom, two behemoths who can and will provide the same services as the WVAS firms.

Witness China Mobile's announcement last month that it is going to launch its own instant communication software and will not add similar service provider services in the future. According to China Mobile's notice, it will not only stop increasing service providers in the online chat sector, but it will also end the wireless services of existing service providers such as Tencent and Microsoft's (MSFT) MSN at the end of this year. All China Mobile needs to do is flip a switch, and Tencent's mobile aspirations can disappear.

As I have mentioned multiple times over the last four years, portals like Tom.com, Sohu.com, Sina.com (SINA), and Netease.com (NTES) kept their stock prices artificially high by promoting all the great WVAS offerings available to their users. After only a few quarters, investors saw that money was not being made in the wireless sector. But because only public relations firms and back-pocket analysts provide most of the China Internet sector guidance, everything is poorly skewed for international investors hoping to gain an objective eye into the hijinx of the China technology establishment.

During a conference call with investors in the summer of 2003, Sohu's CFO Derek Palaschuk calmly proclaimed, more than once, that getting SMS-related money from China Mobile was never a problem. However a report in China's 21st Century Business Herald in September 2003 showed cracks in that assertion. The newspaper said the China Mobile debt includes CNY50 owed to NetEase.com, more than CNY40 million to Sohu.com and about CNY50 million to Sina.com. The writing was on the wall 3 years ago that it would be a great problem getting over the receivable problem.

Finally, a reader wrote to me a few months ago and asked, "If you say the prospects for WVAS companies is so grim in China, what do you suggest they do instead?" I suggest they sell soybeans, rice, or put all their brains towards developing a cleaner way to fuel cars.

With the current monopoly of telecoms in China and the way they regulate the industry, the best way to utilize an office full of intelligent, creative, and ambitious employees to create something of lasting value is to focus on paths that will not quickly terminate in dead-ends.

About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.

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