China Unicom yesterday formed an alliance with the country's 20 major Internet-related service providers (SPs) in a bid to boost its wireless value-added services (VAS).

Members of the alliance include NASDAQ-listed Sina Corp, Sohu.com, NetEase.com and Shanda Interactive Entertainment as well as Hong Kong-listed Tencent.

China Unicom Vice-President Li Zhengmao said his firm will consider expanding the alliance with SPs in the future but will do so in a very "selective way."

The alliance will also set up a special fund as part of a joint marketing campaign to promote wireless VAS, he said.

Li would not disclose the fund's amount but said Unicom will contribute the largest share.

Wireless VAS are playing a bigger role in China Unicom's business but a recent survey by the company found there were several problems with Unicom's wireless VAS value chain, Li said.

"For example, the penetration of our VAS remains very low, the marketing effort by numerous SPs is not collaborative," he said.

And a number of small and underperforming SPs are incurring high management costs for China Unicom, said Wang Yingpei, general manager in charge of Unicom's VAS business.

"We have ceased co-operating with more than 100 underperforming SPs in the past months," Wang said.

"And now we will assess SPs' performance every three months (to decide whether we should continue the co-operation)."

The alliance is expected to help China Unicom flush out small SPs and foster a number of giant SPs.

Chinese Internet-related SPs have been hit hard in the past year due to the government and cellular operators' sweeping crackdown on irregularities such as illegal and pornographic content and SPs' forced subscription of services on users without prior consent.

The wireless VAS business has led to a rebound in the country's Internet industry. But now most SPs, especially a lot of small SPs which have relied heavily on irregularities to make money, are under increasing pressure.

Analysts believe many small SPs will be washed out of the market or merged by bigger SPs this year.

Wang also said Unicom will seek a flexible revenue-sharing scheme with SPs in the future.

Currently, Chinese cellular operators usually grab 15 per cent of the revenues generated by wireless VAS, such as SMS (short messaging service) sent via web portals.

If cellular operators seek a bigger bite from the revenue-sharing scheme, SPs will receive an even bigger blow.

In 2004, 60.5 billion SMS (short messaging service) messages were sent over China Unicom's cellular networks, up 10 per cent year-on-year. SMS helped Unicom generate a revenue of 3.944 billion yuan (US$475 million) last year, a 40 per cent increase over 2003.

Wang said he expects SMS revenue growth to be around 30 per cent this year. And Unicom's revenues from colour ring back tone (CRBT) are increasing by more than 30 per cent a month, Wang said.

In March, Unicom's monthly wireless VAS revenues hit 704 million yuan (US$84.8 million), accounting for 11.7 per cent of its revenues from mobile services.

(China Daily May 11, 2005)