Companies in China providing mobile services like ring-tones, games, messaging and music downloads are facing an increasingly difficult environment, analysts have reported.

Firms are shedding staff after being squeezed between the world's largest mobile carrier, China Mobile, and the Chinese government's tough new telecoms rules. 

Most of China's leading providers of wireless value added services (WVAS) have either laid off staff or not renewed contracts over the past few months, according to local media and analysts reports.

The Chinese lunar new year holiday, which ends this week, has provided another opportunity to let staff go.

Problems for the WVAS providers started when the government cracked down on inflated end-user charges last year.

Even as they adjust to new rules which make it harder to sign customers for services, they face growing pressure from China Mobile.

China Mobile is believed to be working on its own mobile phone operating system, according to analysts at WR Hambrecht. 

"If successfully deployed [this will enable China Mobile] to limit the partnerships between handset manufacturers and the mobile content aggregators," said WR Hambrecht analysts James Lee and Xiaofan Zhang in a recent report.

WVAS operators Tom Online and KongZhong Corp, for example, receive 20 to 30 per cent of their revenues from default software installed on mobiles by handset vendors. A carrier-specific OS would not necessarily include these links. 

China Mobile is also believed to be considering a tenfold increase in data charges for WVAS providers and other services outside its network.

This could severely affect WVAS providers' customer revenues, or force them to move within China Mobile's WAP portal and pay charges for the privilege.

Government-linked China Mobile dominates the country's mobile telecoms market. The company reported this week that it added almost five million new subscribers in January to reach a total of 306.1 million.