Sohu.com Inc., one of China’s most popular Internet portals, has been banned from sending Multimedia Messaging Service (MMS ) messages to subscribers of China’s largest mobile operator, China Mobile Communications Corp., for one year effective from Sept, 1, the company said in a conference call on Tuesday.
While the China Mobile ban only affects MMS messages and does not apply to Short Message Service (SMS) messages, the ban is a setback for Sohu as wireless services, including mobile messaging, are big business for Chinese portals.
“Wireless services have become indispensable in Chinese people’s lives,” said Charles Zhang, chairman and chief executive officer of Sohu, speaking on the conference call.
During the second quarter, revenue from wireless services — which include MMS, SMS and WAP-based services — totalled US$11.3 million, accounting for more than 41 per cent of the company’s total second-quarter revenue of US$27.3 million.
Sohu estimated that the China Mobile ban and an unrelated reduction in messaging fees in three Chinese provinces will reduce the company’s wireless services revenue by US$1.5 million to US$1.8 million and net profit by US$1 million to US$1.3 million during the third quarter, which ends on September 30. The company did not estimate the financial impact of the ban for the remaining eleven months it will remain in effect.
Calling the China Mobile ban “a big lesson for all of us,” Zhang said the cause of the ban was more related to timing than to a serious transgression of the operating agreement with China Mobile.
“It’s just unfortunate that these things happened when China Mobile is in the midst of a clean-up campaign (for wireless services),” Zhang said, adding that Sohu continues to hold talks with China Mobile aimed at restoring good relations between the two companies.
China Mobile’s decision to ban Sohu from sending MMS messages to its subscribers, stems from what Sohu termed an “unintentional technical error.”
On June 17, Sohu sent 1,374 SMS messages promoting its MMS-based I Want Photo service to China Mobile subscribers in Sichuan province without China Mobile’s approval.
Sohu discovered the error that same day and later informed executives at China Mobile’s operations in Sichuan province of the mistake, said Carol Yu, Sohu’s chief financial officer. However, Sohu did not notify China Mobile’s headquarters that it had breached its agreement with the operator, thinking the problem was not that serious, she said.
“It’s oversight on our part that we didn’t realize it would be such a big problem,” Yu said.
On August 3, China Mobile informed Sohu that it had uncovered the violation and moved to sanction the portal operator. Ten days later, on August 13, Sohu announced that it had been banned from sending MMS messages to China Mobile subscribers for one year as a result of the violation. In addition, Sohu was compelled to refund the 23 users who had subscribed to the I Want Photo service as a result of the messages and to pay China Mobile 1,374 renminbi (US$166), one renminbi for each SMS that had been sent out.
This is not the first time that Sohu has run into problems with mobile operators in China. During the second quarter of this year, Sohu recorded expenses of US$697,000 “related to penalties and complaints from one of its mobile network operators based on allegations of the breach of certain provisions of the agreements with the mobile network operator,” according to a company statement filed with the U.S. Securities and Exchange Commission (SEC) on August 10.
