I’ll openly admit that I’ve generally sided with Internet giant Tencent (HKEx: 700) in its ongoing dispute with China Mobile (HKEx: 941; NYSE: CHL) over Tencent’s popular WeChat mobile messaging service; but a new report today on the debate is also making me realize that China Mobile’s point has some validity, even if I disagree with its tactics to address the issue. The report I’m talking about cites an executive at Shanghai-based China Merchants Bank (HKEx: 3968; Shanghai: 600036), a leading regional lender, saying his bank is piloting a service on WeChat as it looks to migrate some of its mobile-based services to the platform. (English article)This kind of development is certainly exciting for Tencent as it tries to commercialize WeChat, a mobile instant messaging service that also includes several social networking (SNS) functions similar to Facebook (Nasdaq: FB). After all, big corporate names like China Merchants Bank will undoubtedly be happy to pay big money to WeChat if they can use the service to promote their business objectives. That contrasts sharply with average consumers, who are less likely to want to pay for a service that is currently free.
But what most caught my attention in this report was a quote from the Merchants Bank official stating the obvious: that using WeChat could help the bank save big money because sending WeChat messages is free. The story notes that China Merchants Bank currently spends big money on its present mobile notification system that uses traditional SMS text messages to notify account holders about everything from balances to credit card transaction.
Such messages cost 0.1 yuan each for most consumers to send, though I expect that big corporate customers get a bulk discount from the telcos. Still, a migration of some or all of those messages to WeChat and similar services would probably save Merchants Bank millions of yuan each month, since WeChat messages are routed over the mobile Internet and are essentially free.
WeChat’s substitution for traditional SMS lies at the heart of China Mobile’s complaint, since it gets far less revenue for messages routed over the Tencent service than it does for traditional text messages. China Mobile and Tencent have been locked in a battle since late last year over how to tackle the issue. China Mobile complains that WeChat is one of the biggest users of its network, and wants Tencent to start to charging for the service and to share some of that revenue. Tencent, meantime, has said several times that it has no intention of charging for WeChat, which now boasts more than 300 million users. (previous post)
China Merchants Bank’s comments indicate that the decline of SMS could come even faster than many previously thought if big corporate customers suddenly start abandoning traditional text messaging in in favor of WeChat and similar services. That could be bad news for China Mobile, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA, as all 3 traditionally got fairly significant revenue from their SMS services.
This kind of rapid decline of a service like SMS isn’t uncommon at all, and has happened over the last decade to traditional fixed-line phone business with the rapid rise of mobile phone service. But rather than and complain to mobile companies, western fixed-line operators have upgraded their networks to roll out powerful new services like video streaming and conferencing and high-speed broadband access.
China Mobile’s complaining and bullying attitude in its dispute with Tencent has always been my main reason for favoring Tencent in the matter. I still think China Mobile needs to take a more conciliatory, forward-looking approach. But in the meantime, the decline of traditional SMS will continue and perhaps even accelerate with the defection of big corporate customers like China Merchants Bank.
Bottom line: China Merchants Bank’s trialing of a new WeChat-based notification service shows the decline of traditional SMS could soon accelerate.