China telecoms: Mobility problems

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China Mobile is struggling to hold its own against innovative new competitors. Can the company reinvent itself?

China Mobile, the country's largest wireless operator by subscribers, seems to have lost its way of late. Its basic GSM service, which used to rake in heaps of money, lost nearly 12m customers during the first four months of this year. Its 3G TD-SCDMA service has had a bumpy start. To make the situation even more precarious, 4G TD-LTE is making little headway without a licence, and it is not clear how many customers it will recruit once rolled out.

Meanwhile, China Mobile's traditional SMS services – once the most popular in the land – saw volume and revenue slide by about 7% in 2012 while revenue from voice inched up only 2%. And the wireless behemoth is under attack from a number of OTT operators in areas of mobile IM, P2P video, games and mobile apps. Many of these OTTs were once China Mobile’s service providers, but have gradually turned into fierce

It would be wrong to write off China Mobile in the mobile data sector. The company is still a formidable player with more than 700m customers, while its profit was nearly six times that of China Telecom and China Unicom combined in 2012. Its challenge now is to retain customers who are being lured away by the innovative, cheap or even free offerings of its rivals.

Take Fetion, an SMS service developed by China Mobile back in 2007. It allowed customers to send message from their handsets and PCs free of charge up to a certain limit. But the flaw was that the recipient also had to be a customer, and as a result Fetion lost ground to Weixin, a rival service developed by Tencent. Weixin now has more than 300m users, making it the largest social networking service in the world.

Not only is Weixin free to all users, but it is also able to handle text, pictures, video and voice as well as messages. Its interface looks chic and easy to use. In response, China Mobile has tried to turn Fetion into a broader platform by introducing Feiliao, a service that is free to all users. Yet now it not only has to compete with Weixin, but also with other services such as YY (SNS tilted), Momo (LBS), Talkbox, Whatsapp and MiChat (mobile IM).

The experience has been a lesson for the company's managers. When Weixin was first launched two years ago, no one at China Mobile paid much attention. When the service became popular, China Mobile tried to charge it a fee for taking up too much network capacity. After a public outcry, the company was forced to back down.

This is not the only bad publicity that China Mobile has attracted over the past few years, and it is also not the only time it has been too late in recognizing the strength of its competitors. Slowly China Mobile is waking up to the idea that government protection will not shield it from market forces for long, particularly as traditional mobile services lose ground to internet-based services.
Renewed efforts

Last year, China Mobile started trying to present itself as not just a carrier but as a provider of content and mobile apps. The emphasis has switched to building “smart pipes” based on the app market (for TD-SCDMA), cloud computing and M2M. For example, China Mobile is working with UnionPay, a banking consortium on NFC; their first handset wallet service launched in early June.

China Mobile is also trying hard to make its mobile data offering work. In 2011, the company set up nine centres around the country to develop mobile data services including music in Sichuan, video in Shanghai, LBS in Liaoning, m-commerce in Hunan and M2M in Chongqing. New apps and services were rolled out covering e-reading, games, music and cartoons

Yet none of them has really taken off. Many of the designs lacked a broad appeal, while the lengthy development cycle allowed rivals to gain the upper hand. Worse, bureaucracy and redundancy hurt innovation and coordination. Many centres are now shutting down to be replaced by “professional teams” in a vertical structure.

In another effort, China Mobile unveiled Jego in early June, its newest version of mobile IM. But Jego targets overseas Chinese making calls back home, rather than a broader segment. There are design flaws too, with periodic breakdowns. And while Jego offers competitive rates for international calls compared to Skype, the service is available in far fewer countries. The biggest drawback, however, is that Jego can only be used in smartphones, not tablets, driving away many potential customers.

While pushing ahead with these ventures, China Mobile is also retrofitting its old voice technology. In early June, the company set up a partnership with Audience, an audio processing chipmaker in California, to develop digital voice technology including voice compression and voice recognition for smartphones. Audience is already a supplier to Chinese handset markers like Huawei, ZTE, Xiaomi and Meizu. The partnership with China Mobile is expected to take off when new smartphones are equipped with Audience’s EarSmart technology. For China Mobile that would be a rare glimmer of hope.

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