Two leading Chinese wireless value-added service providers Kongzhong Corp and Linktone Ltd showed a slowdown in the first quarter amid industrial adjustments and increasing competition.

Beijing-based Kongzhong said yesterday that revenue in the first quarter grew just 3 percent over the previous quarter to US$17 million, with net profits declining 11 percent over the fourth quarter to US$5.88 million, or 14 US cents per diluted American depository share (ADS), compared with 19 US cents in the previous quarter.

"We are pleased to announce we have met our guidance for the first quarter, despite a challenging market environment," said Zhou Yunfan, chairman and CEO of the NASDAQ-listed firm, at a conference.

Zhou attributed the decline of profits to US$860,000 to legal fees and said that but for litigation expenses, Kongzhong would have maintained its 19 US cents earnings per share.

Kongzhong's stocks on the NASDAQ fell 6.28 percent to US$7.31 on Monday US eastern time, after the results were announced. The company also suffered from an adjustment of the billing and supervision MISC system by its major customer China Mobile in its multimedia messaging service (MMS). China Mobile launched the MISC platform to better regulate the billing and supervision system on short messaging service and MMS. The move is an attempt to better regulate the market and prevent over billing by service providers.

Zhou also warned that China Mobile's move to clear inactive WAP (wireless application protocol), which allows users to download ringtones and pictures, will also cause Kongzhong's WAP service to fall by 10 to 15 percent in the future.

The company estimated its revenues in this quarter to be between US$17 million and US$17.5 million.

Kongzhong's Shanghai rival,Linktone, also announced its results for the first quarter yesterday with revenues reaching US$15.1 million, down from last quarter performance of US$15.5 million.

Its net profits also dropped slightly from US$3.3 million in the fourth quarter to US$3.2 million in the first quarter. Its diluted earnings per share remained steady at 12 US cents.

Linktone's ADS on the NASDAQ closed at US$7.58, rising 5.57 percent on Monday, which gained another 8.84 percent in after-hours trading. Linktone's MMS and WAP services also suffered from China Mobile's adjustment to billing policy. Its 2.5G revenues, mainly from MMS and WAP, contributed 14 percent of the company's total, compared with 29 percent in the fourth quarter.

Zhang Ying, general manager of the domestic research house Analysys International, said that the industry will see a year of restructuring with growth registering at around 30 percent year-on-year.

"As operators try to squeeze the bubbles in the industry, growth in 2005 will be more rational and under the influence of operators' regulations," said Zhang.

Analysts said that revenues from MMS services fell sharply from 180 million yuan (US$21.74 million) in the first quarter of last year to 65 million yuan (US$7.85 million) this year.

Analysts said it will be very difficult for service providers to maintain the momentous growth of the past years through irregular operations.

(China Daily May 25, 2005)