Reuters
Linktone IPO connects with China cellphone surge
Tuesday March 2, 5:23 pm ET
By Steve James

NEW YORK, March 2 (Reuters) - A wireless revolution in China
is transforming the world's biggest cellular phone market into a
Shangri-La for companies that provide musical ringtones, jokes,
weather forecasts and other services to mobile phone users.
 
The time has never been better for companies like Shanghai-based
Linktone Ltd. to go public, with the number of mobile phone users
expected to rise from 268 million to nearly 400 million by next year.
The Chinese government is also testing more sophisticated 3G, or
third-generation, wireless telecommunications services before issuing
3G operator licenses.

Linktone, which even offers horoscopes on cellular phones, expects
to price an initial public offering in New York on Wednesday, with
its stock debuting on Nasdaq the next day under the symbol "LTON"
(Nasdaq:LTON - News). The company was so confident of investor
interest that on Monday it increased the shares in the offering to 61.4
million from 60.6 million.

The company still plans to sell 51.5 million common shares, Linktone
said in an amended prospectus filed with the U.S. Securities and Exchange
Commission (News - Websites) . But shareholders will now sell 9.9 million
common shares instead of the previous 9.1 million. Linktone did not change
the estimated price range of $10-$20 for each American Depositary Share.
Each ADS represents 10 ordinary shares.

Credit Suisse First Boston, JP Morgan, Piper Jaffray, and CLSA Asia Pacific
Markets are underwriting the offering. They have the option to buy another
6 million shares from the company and 3.2 million shares from selling shareholders.

Telecom analyst Peter Friedland, of WR Hambrecht & Co. in San Francisco,
said China had nearly 270 million wireless phone subscribers at the end of
2003, accounting for about 21 percent of the population.

By comparison, 55 percent of the U.S. population subscribes to cell phone
companies and a whopping 80 percent in Western Europe. But mobile
penetration rates in China remain low compared with other Asian markets
such as Japan (62 percent), South Korea (68 percent) and Hong Kong (91 percent).

That alone would indicate the potential for growth in China, analysts said.

"The different applications, like games and things, have not really taken
off outside Asia, there's not much demand here (in the United States).
But Japan and Korea are much more gadget-oriented," said one analyst
who requested anonymity.

Francis Gaskins, an analyst with IPO Desktop, noted that Linktone's
revenues grew steadily through the last four quarters for a 2003 total of $16.5 million.

He said a key was Linktone's series of partnerships with companies
like Turner Broadcasting/Cartoon Network and Sony Music, to provide
young, hip content for its services.

"These phones are used mostly by young people who use them for
dating and pre-dating," he said.

Founded in November 1999, Linktone offers IVR (Interactive Voice Response)
service which allows users to send songs to other users, chat in voice chat
rooms and use voice-dating services.

Its services, especially appealing to young people, include icons and screen
savers, interactive SMS (Short Messaging Services) messaging, adventure,
action and trivia games, lunar and Western horoscopes, jokes, fan clubs,
event-driven or entertainment news updates and a virtual mobile amusement
park called WonderWorld.

It also offers MMS (Multimedia Messaging Service), which allows users to
enhance messages with sound and images, making it more attractive than
traditional SMS, which is limited to 160 characters.