Business, Law & Policy, Telecom & Wireless

KongZhong Admits Chinese Wireless Porn Crackdown Will Hurt Revenue

It takes guts to be the first to admit a failure, and Chinese wireless value-added services firm KongZhong Corporation has now become the first U.S.-listed mobile firm from China to admit an expected downturn caused by last week's suspension of telecommunications billing.

On November 30, 2009, in order to support the Chinese government's efforts to maintain an orderly mobile Internet environment, China Mobile implemented a series of measures targeted at eliminating offensive or unauthorized content, including pornographic content, on Chinese-based wireless application protocol sites. As a result, China Mobile and other Chinese telecommunications operators have suspended billing their customers for all WAP and G+ mobile gaming platform services, including those services that do not contain offensive or unauthorized content, on behalf of third party service providers of such services. China Mobile and other operators have not yet indicated how long its new measures would last or whether it would expand its current measures.

Jay Chang, KongZhong's chief financial officer, bravely stated: "We fully support these measures to improve the content quality of the Chinese mobile Internet market. We are confident that our WAP sites and services do not contain any content targeted by these measures. We expect these measures to establish a healthier and more transparent operating environment, and intend to work closely with China Mobile to develop high quality services for the growing 3G mobile telecommunications market in China."

KongZhong expects that the measures will impact the KongZhong's WAP and wireless Internet services and a portion of the company's mobile game services, as well as the revenues derived from such services. Based on the company's current assessment of these measures, KongZhong now expects its revenues in the fourth quarter of 2009 to be within the range of USD34.0 million to USD35.0 million, as compared to its previous guidance range of USD37.0 million to USD38.0 million.

Days after the November 30 edict, China's Legal Daily ran an article that China Internet Illegal Information Reporting Center had already exposed ten Internet service providers that allow pornographic information to spread both through wireless and online channels. The ten internet service providers are Shanghai Telecom Science & Technology Development Company Ltd.; Shanghai Wangyu Network Technology Company Ltd.; Anhui Yanhuang Network Technology Company Ltd.; Zhejiang Liantong; Shanghai Cao He Jing Lian Tong; Jiangxi Tietong; Guangdong Maoming Qunying Network Company Ltd.; Jiangsu Changzhou Wanglong Network Technology Company Ltd.; Nanchang Haoku Science and Technology Company Ltd.; and Shanghai Suxing Telecom Company Ltd.

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