China Mobile hopes to make up for lost revenue from rise of chat apps

China Mobile Ltd, the world's biggest telecom carrier by subscribers, plans to boost its data services to make up for a drop in revenue from short message services caused by the rise of chat applications.

China Mobile and carriers across the world are being severely challenged by thriving instant messaging applications on mobile phones, such as WeChat and Whatsapp, which allow users to send text messages, images and voice clips through mobile networks.

An increasing number of smartphone users are choosing to use the applications over the carriers' short message and voice services to communicate with friends and family members as they are much cheaper.

It costs at least 100 yuan ($15.95) to send 1,000 text messages through the carriers' services, but only 3 to 5 yuan to send the same number of messages using the applications.

Xi Guohua, China Mobile's chairman, told a press conference in Hong Kong on Thursday that the company's strategy to cope with the challenge posed by the chat applications is to step up its data services, partly through building its new 4G network, in the hope that a rise in data services revenue will make up for the inevitable loss in the traditional SMS and voice services.

"Strengthening data services is our answer to instant messaging," said Xi, after remarking that China Mobile's net profit grew just 2.7 percent in 2012 to 129.3 billion yuan, on a 6.1 percent increase in revenue to 560.4 billion yuan.

Revenue from short message and multimedia message services dropped about 5 percent to 44.2 billion yuan. Revenue from voice services, mostly phone calls, was almost stagnant, increasing just 1.1 percent year-on-year to 368 billion yuan.

The weakness in the two traditional services was mostly compensated by a surge in revenue from wireless data traffic, which jumped 53.6 percent to 68.26 billion yuan. Wireless data traffic volume grew 187.6 percent to 1,039 billion megabytes, a clear sign that China Mobile's data services are taking off.

Revenue from wireless data traffic accounts for 12.2 percent of the carrier's total revenue, up 3.8 percentage points from 2011. The proportion of short message and multimedia message services, in turn, dropped 0.9 percentage points, to 7.9 percent.

"Wireless data traffic has developed rapidly and become a key driver of revenue growth," said Xi.

The carrier's voice and short message service business may become even weaker as traffic on chat applications keeps ballooning. On a single day - Dec 31 - the number of outbound messages on WhatsApp hit 11 billion. In January, Apple Inc said that users on its iMessage service were sending more than 2 billion messages a day, up from 1 billion in June.

China Mobile hopes that the launch of its TD-LTE 4G network will help bring in much-needed additional revenue. The carrier has set aside 41.7 billion yuan this year to invest in its TD-LTE infrastructure, including building over 200,000 base stations nationwide. Last year, it spent around 5 billion yuan to build 20,000 base stations to test the new technology and decided that TD-LTE is mature enough for commercial promotion. The investment will account for a major part of the increase in its planned capital expenditure to 190 billion yuan this year, up from 127 billion in 2012.

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(China Daily 03/15/2013 page15)