China Mobile Comes Down Hard On Sohu
In an unprecedented move, China Mobile has banned Sohu,
one of China's leading Internet portals, from using it
as an MMS (multimedia message services) provider for one
year. China Mobile was reacting to subscriber complaints
that they were getting spammed by Sohu, and then getting
billed for the spam. When the announcement was made last
Friday, Sohu was suspended from Nasdaq trading because
of the move.
The incident which led to China Mobile's decision to
ban Sohu took place in June, with a photo message going
out to users in Sichuan. In many cases, adult content
has gone out to China Mobile subscribers, which has caused
deep embarrassment to China Mobile management. Lately,
the Chinese government has cracked down on adult content
sites, which seem to sprout up again quickly in spite
of the best government efforts.
This has put China Mobile management, a state-owned enterprise,
in the untenable situation of unintentionally distributing
adult content via the content portals, while the Ministry
of Public Security is fighting to ban adult websites and
content.
In a Tuesday morning conference call, Sohu's management
blamed the June Sichuan incident on a technical glitch.
Most observers see it more as a bad move by marketing
management anxious, even desperate, to maximize revenue.
In June and July, all three companies, Sina, Sohu and
Netease, have had to issue warnings and revise their earnings
downwards because spamming complaints have forced the
carriers to crack down.
MMS services, the successor to SMS (short message services),
have been the single largest source of revenue for China's
Internet portals, which went through near-death experiences
before they were bailed out by SMS contracts with China
Mobile, which were mostly made in 2000 and 2001. In most
of the contracts, the portals took 85% of the billing,
with 15% going to China Mobile or China Unicom. The high
takeup of SMS services, and later MMS services, among
China's mobile phone subscribers jumpstarted the portals,
with their share prices going from lows of less than US$1
to more than US$60.
For the portals, the SMS revenue has had the addictive
effect of crack, and it has been very difficult for their
management to wean themselves and develop alternative
revenue sources. Even though their management knows that
they are dependent on the carriers for the revenue, it
has been difficult to diversify because virtually nothing
else offers the kind of revenue, or easy money, these
contracts offer.
Among the three portals, Netease has been most effective
at diversifying revenues,and developing its own online
games. In China, online games are more popular because
they are impossible to crack (make unauthorized copies)
because they are hosted on the company's servers, and
because they generate per hour/per user access fees.
Online games have also pushed broadband as a standard,
since the user experience is far better with broadband.
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