Quarterly earnings reports from China's listed wireless value-added service providers last week showed that companies continue to deal with regulatory changes, but the sector looks to be well on its way to recovery and new growth over the next several quarters.

While some services continue to be hurt by new policy changes, the mobile operators' efforts to streamline services through the establishment of central platforms should benefit service providers in the long run.

NASDAQ-listed wireless value-added service provider Kongzhong reported 8 percent growth in revenues in the second quarter to US$18.38 million.

Revenues from more advanced 2.5 generation services fell in the second quarter for many of China's wireless value-added service providers.

Kongzhong's 2.5G revenue was down 1 percent in the second quarter, while wireless value-added service provider Hurray reported a 6.5 percent drop in 2.5G revenues when the company announced earnings last week.

One reason revenue from advanced services fell is because China Mobile, whose users account for the majority of the value-added services market, is axing subscriptions to wireless application protocol services that have been inactive for a certain time. Kongzhong's WAP revenue was down 4.6 percent quarter on quarter.

But WAP services are likely to rebound by the end of the year if past experience is any indication of how things will play out.

Revenues from SMS services took a hit at the end of 2004 while China Mobile was in the middle of migrating SMS services to a central platform controlled by China Mobile.

SMS services have since rebounded — Kongzhong's revenue from SMS and other 2G services was up 48 percent sequentially in the second quarter of this year.

At the beginning of 2005, China Mobile transferred its multimedia messaging services to its central platform. As a result, MMS revenues were down in the first quarter. But MMS services showed some recovery in the second quarter. Kongzhong reported that MMS revenues were up 6.7 percent from the first quarter.

Challenges will remain in the industry as mobile operators, especially China Mobile, strive for a more regulated and transparent industry.

Despite the struggles facing the wireless value-added services market, investors continue to be attracted to China's 350 million mobile phone users.

(Shenzhen Daily August 25, 2005)