China Mobile Beefs Up 4G, Targets Tencent

China Mobile revs up for 4G WeChat assault

Leading telco China Mobile (HKEx: 941; NYSE: CHL) is talking tough in Barcelona at the world’s top trade show, detailing aggressive plans to quickly boost its new 4G service in a bid to take on the massive challenge from Tencent’s (HKEx: 700) wildly popular WeChat mobile messaging service. I’ve previously criticized China Mobile for failing to innovate and relying too much on its highly protected status in China’s telecoms services markets. But this new series of announcements seems to highlight a newer posture at the state-run behemoth, hinting that it may finally start to become more dynamic in response to a growing number of private sector threats.

The most interesting news in this mini-flood of announcements comes from China Mobile’s top executive Li Yue, who has disclosed his company will roll out a product later this year to directly challenge WeChat. Industry watchers will recall that China Mobile and Tencent became locked in a high-profile dispute about a year ago, which saw the former accuse the latter of hogging up its networks due to the widespread popularity of WeChat as an “over the top” (OTT) app used by millions of China Mobile subscribers. That dispute ended with China Mobile grudgingly giving up its efforts to force Tencent to enter a revenue sharing agreement for WeChat use.

Instead of entering a more friendly collaboration with Tencent, which is what rival telco China Unicom (HKEx: 762; NYSE: CHU) did, China Mobile is taking a more competitive approach by trying to develop its own rival product. Li detailed that initiative, which will see a new flood of specially designed handsets start to enter the market later this year optimized to steer subscribers to China Mobile’s own new alternatives to WeChat’s various services. (English article)

I won’t go into the details of these new products and services here due to space limitations. But from a purely strategic point of view, I have to say that I quite like this approach and would give it a reasonable chance of success if China Mobile can create a products. China Mobile’s biggest strength has always been its dominant position in the nation’s mobile market, where it owns two-third share with more than 700 million subscribers. Those users must all buy handsets that function on China Mobile’s networks, giving the carrier a natural entry point to automatically load software onto those handsets that favors its own services over rival ones.

China Mobile looks set to steer users to its new offerings through an extremely aggressive expansion of its newly launched 4G service this year. The company issued a separate news release to detail that expansion, which includes the construction of 500,000 base stations across 340 Chinese cities by year-end. (company announcement) Equally significant are China Mobile’s plans to flood the market with low-cost 4G handsets selling for as little as $100-$150 each. That combination of widespread service and low-cost handsets could quickly prompt many of China Mobile’s current customers to upgrade to 4G from their current 3G and 2.5G services.

This aggressive 4G build-up, combined with the introduction of new low-cost handsets, all look like smart and market-oriented ways for China Mobile to quickly win market share to its new WeChat rival product. Of course we’ll have to see just how good the new product is, as China Mobile doesn’t really have a very strong track record for good app development. But if the new product is well designed, China Mobile could easily use its many natural advantages to take some significant market share away from WeChat and other similar products, perhaps providing some upside for its stagnant profits and share price.

Bottom line: China Mobile’s aggressive 4G buildup and other natural advantages could help it to quickly steal market share from Tencent’s WeChat when it rolls out a rival product later this year.

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