After months of complaining about new competition from the private sector, dominant mobile carrier China Mobile (HKEx: 941; NYSE: CHL) is finally developing its own rival products to combat the rapid rise of WeChat, a popular mobile messaging app run by Internet giant Tencent (HKEx: 700). This move is what China Mobile should have done from the start, and marks the carrier’s own important realization that it can’t depend on Beijing to protect its dominant market status the way it might have in the socialist era.
The saga involving China Mobile and Tencent in many ways reflects China’s ongoing economic transformation, which is seeing nimble and aggressive private firms increasingly challenge older State-owned behemoths. This kind of competition is exactly what the market needs to make China’s big State-owned enterprises more innovative and market-oriented, and Beijing should be careful to stay out of such clashes as long as no one is breaking any laws.
The stand-off between China Mobile and Tencent first jumped into the headlines last fall, when China Mobile first complained about the rapid rise of WeChat, which now boasts more than 300 million registered users just two years after its launch.
China Mobile said WeChat subscribers were hogging its network with their frequent usage of the app, which sends messages over the mobile Internet. China Mobile further complained that WeChat was allowing mobile subscribers to send text messages for free, stealing business from its own fee-charging SMS text messaging service.
China Mobile tried to force Tencent into a revenue sharing agreement, even though WeChat is free and doesn’t generate much revenue yet. China Mobile tried to pressure Tencent to start charging fees for WeChat to address that issue, even though Tencent steadfastly refused. The conflict culminated when China Mobile used its government connections to bring in the industry regulator to mediate the dispute. The regulator finally realized it had no place mediating such a commercial matter, and withdrew to let China Mobile and Tencent resolve the issue by themselves.
After realizing its government connections and pressure tactics weren’t yielding the desired result, China Mobile has finally taken a better approach by working to develop its own new products to rival WeChat and other similar mobile apps. In April it began a major overhaul of its popular but outdated Fetion instant messaging service, and late last week it announced a planned launch later this month for another similar product called Jego (English article; Chinese article). China Mobile has also been rumored periodically to be exploring partnerships with the developer of Line, another popular mobile messaging product.
These kinds of initiatives could help China Mobile win back some of the traffic and users it has lost to WeChat and other privately-developed mobile apps over the last year. At the same time, such moves will force Tencent and other mobile app developers to keep improving their own products or risk losing business back to China Mobile. This kind of competition is what keeps companies healthy and vibrant in a true market economy, and should be encouraged and embraced by both Beijing and China’s big State-owned enterprises.
Bottom line: China Mobile’s roll-out of new instant messaging apps marks an important shift to competing with rather than complaining about Tencent’s WeChat.