Rumor: KongZhong Buys Up Excess TD-SCDMA Credit
Netease, 7/17/09
Numerous posts have appeared online from companies and individuals offering to buy back remaining value from trial TD-SCDMA accounts that are set to expire by the end of the month. According to an industry source, wireless value-added service provider and WAP portal operator KongZhong (Nasdaq: KONG) has been buying back stored value from these accounts on a large scale for some time now, the greatest volume of these transactions being made in Shanghai, where the company has been purchasing millions of RMB worth of accounts per month. "KongZhong uses the remaining balance in each account to buy its own value-added services from China Mobile's WVAS platform, gets an 85% revenue share from the operator (the operator keeps the other 15%), gives a portion of its 85% share to the mobile account holder, and keeps the rest as profit," said the source. China Mobile (NYSE: CHL; 0941.HK) denied sharing in profits from companies engaged in these activities, adding that buyback and cash-out of stored value on TD-SCDMA accounts is a violation of the company's terms of service, and that China Mobile reserved the right to take legal action.
China Mobile launched TD-SCDMA service for commercial test use on April 1, 2008, giving trial users RMB 800 in free stored value each month.
Editor's Note: Commonly known as "self-hitting", the practice by wireless value-added service providers (SPs) of buying discounted calling credit, using it to purchase their own products from the mobile operators' platforms, and taking advantage of the 85:15 revenue share to turn a profit at the operators' expense was particularly popular before the Ministry of Information Industry's July 2006 crack down on the industry. One product category for which the practice saw especially wide-spread application was ringback tones, as even when not generating a direct profit on the WVAS purchased, self-hitting helped move the purchased ringback tone title up in the operator's IVR and web "Weekly Top 10" lists, improving sales to real users.
Keywords: 0941.HK China Mobile CHL KONG Kongzhong TD-SCDMA WAP portal wireless 3G WVAS scam self-hitting SP
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