Chinese Operator Saw Losses in Text & Voice Businesses, Worried About Tencent’s WeChat

Chinese Operator Saw Losses in Text & Voice Businesses, Worried About WeChat

By Tracey Xiang on March 18, 2013

Last week rumors circulated that the big three Chinese operators were in talks with Tencent about WeChat’s snatching their text and voice businesses. One rumor went as far as the big three were going to charge WeChat users separately or even Tencent, WeChat’s parent company. Tencent denied the latter.

But what’s true is China Mobile, one of the three, acknowledged threat from WeChat. President of China Mobile, Li Yue, talked on a couple of occasions that their conventional telecom businesses were suffering the consequences of the rise of over-the-top services, especially WeChat. The carrier saw losses in text messages, local and international calls in terms of both usage and revenue.

Data sales cannot compensate for the loss in text messages.

China Mobile saw the annual revenue from text messages decreased by 2.2 billion yuan ($35mn) , 5%, year-over-year as of 2012, according to the the annual earnings results released last week. The ARPU reached the lowest in the past five years.

Although its mobile Internet business increased 54% with a 188% increase in data sales, it seems not enough to compensate for the loss in text messages. The company could make one hundred yuan from 1000 test messages but no more than ten yuan if those messages were sent out through WeChat, Li Yue said at the press conference after the earnings release.

Tencent, a frienemy

Mr. Li once accused Tencent that the huge message traffic from QQ IM occupied too many signaling paths that would degrade signaling performance. Now he says the same thing about WeChat. It was reported that Mr. Li visited Tencent for that issue with QQ in 2010 and started charging a fee for it ever since. That might be why people speculated the telecom giant would ask WeChat for money.

Tencent couldn’t make a penny from its already-popular-back-then IM service before China Mobile rolled out Monternet, a program that shared revenues with service/ content providers, around 2002. Users paid monthly subscription fees for QQ services through their feature phones.

But in smartphone era, services like WeChat don’t rely on operators to reach users and don’t have to share income with them. WeChat representative, in response to the rumor mentioned, said that value-added services or content on top of the mobile chatting app would help operators increase user loyalty and ARPU. He added that they’d want a win-win situation with operators and with mobile Internet the room for cooperation could be even bigger than Monternet times.

The chairman of the board of China Mobile, Qi Guohua, buys the idea, saying channels like Tencent would help them get new customers.  ”(VoIP) as a technological innovation is unavoidable that no force can stop it. We have to face it”, he said so and counts on data sales, “we’d increase investment in network coverage. That’s our core competence as a traditional operator. That’s what over-the-top companies cannot do.”

Anyhow, WeChat itself hasn’t started monetizing its user base. Pony Ma, CEO of Tencent, told media recently that it took time to build any monetization model, sense-making or not, while outsiders had suggested tons of models.

It was reported that Chinese authorities would release licenses for mobile virtual network operators (MVNO) this year. It is expected that Internet service or content providers like Tencent would pay operators for using infrastructures and come up with new services. Pony Ma has made it clear that Tencent wouldn’t apply for a license. China Mobile president said they hadn’t decided who to work with on that.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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