Investors were unhappy when China Mobile decided to set the price of sending an SMS message at 0.1 yuan (1.2 US cents) several years ago.

"I had to avoid meeting investors in our listed firm," recalled Lu Xiangdong, deputy general manager of China Mobile Communications Corp, the parent of the listed firm China Mobile (Hong Kong) Ltd.

"They went after me and asked why we set such a low price?"

Lu said the price of sending SMS in the Chinese mainland was the cheapest in the world. At that time, sending an SMS message in Hong Kong cost HK$2 (25.6 US cents), which later dropped to HK$1 (12.8 US cents).

"Now I can say some consumers might think our price is still expensive," Lu said.

The later runaway success of SMS in China, largely fuelled by the low-prices, took most investors and even China Mobile by surprise.

In 2002, about 90 billion short messages were sent via mobile phones in China.

That number jumped to 217.7 billion last year, according to the Ministry of Information Industry (MII).

"That is an astronomical number. Frankly speaking, our initial idea was just to replace the beeper with the mobile phone," Lu told the launch ceremony of a joint SMS business center last month.

Among China Mobile's more than 200 million cellular users, 75 percent send an average of more than 100 SMS messages every month.

Slowdown

What was also unexpected is that the growth of SMS in the country is now losing momentum, with an even greater slowdown expected in the years to come, according to analysts.

That is pushing operators and mobile service providers to find ways to spur SMS growth and search for other profit engines.

The number of SMS messages sent in China last year grew 58.8 percent year-on-year, said the MII, but it did not give a comparable figure for 2003.

But based on the earlier statistics not fully confirmed by the MII, the number in 2003 stood at 220 billion.

If it is the case, it represents a fall in SMS growth.

And the number of SMS messages sent last year largely fell short of many research houses' forecasts.

Beijing-based Analysys International had predicted the number of SMS messages could hit 300 billion.

And the Chinese Academy of Telecommunications Research under the MII was even more bullish. The academy had forecast the number could more than double to 550 billion in 2004.

In total, in addition to those sent via the limited mobility PHS (personal handy system) networks, the total number of SMS messages in 2006 was forecast to hit 1.4 trillion.

But such forecasts are apparently overly optimistic.

"I believe the SMS market will experience very flat growth this year," said Wang Yuquan, president of consulting firm Frost&Sullivan (China).

However, "SMS has become a major communications tool for Chinese people, and SMS will remain a major profit engine for wireless value-added service operators," Wang said.

A recent survey by search firm www.chinasurvey.com.cn found that 61 percent of mobile phone users will send greetings via SMS to their relatives and friends during the upcoming Lunar New Year.

During the week-long holiday in the previous years, more than 10 billion SMS messages were sent in China.

According to Shanghai-based iResearch, China's wireless value-added service providers are projected to post a revenue of 64 billion yuan (US$7.73 billion) in 2006, up from last year's 38.5 billion yuan (US$4.65 billion).

Wang attributed last year's sluggish SMS growth to a broad crackdown on irregularities by the government and mobile operators.

Wireless value-added service providers including NASDAQ-listed Sina Corp, Sohu.com and NetEase.com have been involved in irregular practices such as illicit marketing and offering pornographic content prohibited by the government.

Some analysts estimated that among the 220 billion SMS messages in 2003, about 20 billion were spam.

A crackdown will benefit the long-term development of the SMS market, they said.

Wang said that a slow growth is expected in the SMS market in the years to come as it is becoming increasingly mature.

"The growth of SMS is apparently slower compared to two years ago," said Cai Ji, deputy general manager of China United Communications Corp's value-added service division.

"We are wondering how long sustained growth will last? Are there any new growth engines? Will SMS be replaced by another service?"

Some analysts believe the continuing falls in voice communications fees in China are also tarnishing SMS' attractiveness.

New engines

Despite the expected slowdown in growth, SMS will not be replaced in the short term by other services as the largest revenue generator in the wireless value-added service market, said Xu Yu, a researcher with the Chinese Academy of Telecommunications Research.

The SMS market continues to offers much potential while service operators need to make more efforts to tap into customers' needs, the researcher said.

"Besides chatting, making friends, guessing games, news alerts and information inquiries via SMS, the personalized services targeting different user groups in the SMS innovation should be a new direction," she said.

Both Lu and Wang said so-called "SMS novels" might be a big hit in the SMS market.

The service enables mobile phone users to read a novel by receiving an "episode" in a SMS message every day, costing about 0.3 yuan (3.6 US cents) each.

That may sound crazy in other countries. But the service is catching on in China.

Lu attributed the craze to China's unique cultural background.

The success of SMS, for example, is largely a result of it cheapness and the Chinese people's general shyness compared to westerners' forwardness.

And many Chinese people like forwarding funny SMS messages to their friends.

"A lot of writers have already started working on 'SMS novels' which are gaining increasing popularity," he said.

Wang said if mobile phone users can select plots and/or endings or even participate in writing the novels, the SMS market will receive an additional boost.

Corporate space

Operators and service providers can also profit from the information services based on SMS provided by insurers, security firms, banks, airlines, and shopping malls, Wang noted.

But companies have an even longer term goal in marketing SMS in the corporate sphere.

The joint SMS center, called MOBNIC (Mobile Network Information Centre), jointly launched on January 18 by China Mobile, China Unicom, the China Mobile Communication Association and other service providers would enable users to visit corporations' "SMS-based websites."

Users can send a specific number, or code, via an SMS message, to access the "SMS website" of a business in order to enjoy interactive information services.

For example, if a reader wants to get some information such as the introduction to and circulation of a newspaper, he or she can send the name of the newspaper or a code to MOBNIC.

The reader will then receive an automatic response which offers multiple choices to access classified information such as an introduction and circulation.

The reader can choose to get the information he or she wants, which will be displayed on the mobile phones' screens.

Organizers of the SMS center said it will offer businesses, especially small and medium-sized enterprises (SMEs) with tight budgets, the chance to market their services to customers.

A number of companies have reportedly started registering the domains of their "SMS websites," which could be their "addresses" in the mobile Internet.

China Unicom officials even billed the launch of the center as a revolution in the mobile Internet.

Jiang Lintao, chief engineer at the Chinese Academy of Telecommunications Research, forecast the number of registered SMS websites will exceed 1 million within three years.

"Its business prospects are quite good," he said.

"We expect the service to help generate about 10 billion yuan (US$1.21 billion) annually for operators and service providers in the wireless value-added services such as SMS, MMS (multimedia messaging service) and WAP (wireless application protocol)."

Both China Mobile and China Unicom have pledged full support to the SMS business center.

The new service offering may also give a boost to the take-up of so-called m-commerce, business transactions over mobile phones.

According to a recent study by US-based Telecom Trends International, the global number of mobile commerce users will grow to 1.67 billion in 2008 compared to 94.9 million in 2003.

Revenues generated from mobile commerce are forecast to exceed US$554.37 billion in 2008 from US$6.86 billion in 2003.

(China Daily February 2, 2005)