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Thursday, September 21, 2006 - Page updated at 12:00 AM

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Bellevue company loses big account

Seattle Times technology reporter

InfoSpace held an all-hands meeting Wednesday at Meydenbauer Center in Bellevue to drop the news on its employees: It lost a major chunk of business from one of its largest customers.

The Bellevue company offered little more information, but said the customer was a wireless carrier that uses InfoSpace services to sell ringtones. The carrier chose instead to work directly with recording companies starting as early as next year.

As a result, InfoSpace said its sales would take a hit, resulting in cost-containment measures.

Company spokesman Jeff Hasen would not elaborate on possible layoffs or identify the carrier involved.

But multiple sources pointed to Cingular Wireless as the customer. The Atlanta-based carrier, InfoSpace's largest mobile customer, accounts for more than 10 percent of overall revenue. Its contract with InfoSpace expires this year, according to Securities and Exchange Commission documents.

InfoSpace also provides ringtones to Bellevue-based T-Mobile USA and Verizon Wireless. Both said they weren't the customer in question.

"I would say it's Cingular. I know they were thinking about going direct to the labels," said Scott Sutherland, an analyst with Wedbush Morgan Securities.

A Cingular spokeswoman declined to comment.

The customer loss signals how it may grow more difficult for companies such as InfoSpace to play a middleman role in the wireless industry.

Increasingly, analysts expect wireless carriers to sign deals directly with media and content owners to lift profits.

The announcement was released after the stock market closed Wednesday. In extended trading, InfoSpace stock fell $4.19 to $18.42.

The company said the loss will negatively affect sales of "label tones," which are ringtones that use snippets of original songs. In the first six months of 2006, they made up $55 million of its nearly $90 million in mobile revenues.

Without giving more details, the company said it will have to "realign" the costs of its 600-employee company and that specifics will be announced within 30 days.

Sutherland said he sees the news as only the start of carriers working directly with content providers. "I don't think it will be the only instance. This is a trend in the industry," said Sutherland, who does not own shares in or have a banking relationship with InfoSpace.

During the past year or two, InfoSpace has increasingly focused on its mobile business as opportunities for its online properties such as Dogpile and Switchboard.com plateaued.

This summer, it launched its own online brand to sell content directly to consumers, including graphics, ringtones and wallpapers. The service, Moviso, is a way to decrease the company's reliance on carriers.

InfoSpace provides other services to Cingular, the largest U.S. wireless carrier. It helps Cingular manage its deck, or the storefront found on the phone.

Sutherland said such technology is more profitable than ringtone sales, which is a positive for InfoSpace. "Their revenues may get killed, but the profits aren't as bad," he said.

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com

Copyright © 2006 The Seattle Times Company

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