It took China Mobile just two days to complete an acquisition that shocked the entire Asian telecom industry. As the digital-service-focused 3G era draws nearer, China Mobile is speeding up its foray into the 3G service market. And it’s not trying to conceal its intension to extend its presence throughout the entire chain of value-added services.
China Mobile signed a strategic alliance agreement with Phoenix Satellite Television, a Hong Kong-based TV station that enjoys great popularity all over China, in June to develop and promote innovative mobile content, products, services and applications. China Mobile also bought a 19.9 percent share in Phoenix Satellite Television Holdings from Rupert Murdoch’s STAR Group (under control of News Group) at a price of HK$1.3 billion dollars (US$164.2 million). “As part of China Mobile’s 3G strategy, this acquisition aims to grant our clients access to more media resources, applications and services,” notes one insider with China Mobile.
A deal between China Mobile, the world’s largest mobile operator, and News Group, the most celebrated media group in the world, has sparked plenty of concern within the industry. In fact, long before the deal, China Mobile had been trying hard to step up content integration through acquisition or alliances with content providers (CPs).
On June 6th, just two days prior to the agreement, China Mobile signed a cooperation agreement with Hawa Feile, a Beijing-based record company, and with several other record companies soon after. “They are just the first partners in China Mobile’s wireless music platform, and more partners will be sought in the next month,” noted the manager of the Data Service Department of China Mobile. By the end of April, China Mobile and MTV Networks under Viacom Inc, the world’s largest record company, signed a cooperation agreement to jointly launch the Monternet (Mobile Internet) music channel. The mobile operator also signed a long-term partnership agreement with the NBA last year.
It’s clear that, as the era of 3G services edges closer, China Mobile is attempting to shape the new data service chain. During the 2G era, operators took a hands-off approach towards service providers (SPs), relying on them to expand the value-added mobile service market. In the 3G era, data service is much more likely to surpass voice service as the leading source of revenues for mobile operators. That might explain why China Mobile is devoting so many resources to developing potential 3G services and gathering them gradually all to itself.
Elbowing out IM
Since the end of this May, rumors have been circulating within the telecom industry that China Mobile would cease its partnership with several well-known sites including youngsters’ popular online community Tencent, MSN service provider Tsinghua-Shenxun Technology, TOM, Sina, NetEase and Yahoo. All these SPs supply IM (instant messenger) service. According to the more recent talks, China Mobile has told the data service division of its local branches not to sign any new contracts with chat community SPs. The chat-room-type Monternet services (such as Tencent QQ) by SPs, which also provide IM services over the Internet, are allowed to continue till the end of this year for the sake of smooth transition. However, the SP cooperation agreement must include specified clauses stating that they would cease their marketing cooperation with the chatting services. The news has not been confirmed, yet according to some insiders, it comes as no surprise that China Mobile would give up its traditional “win-win” cooperation with the SPs now that it has rolled out its IM-featured Femoo.
Tencent QQ, Microsoft MSN Messenger, NetEase PoPo, Tom Skype, Sina UC and Yahoo Messenger together hold over 90% of the Internet IM market, while in the wireless IM market, Tencent’s mobile has a grip on more than 60% of the market, followed by MSN (20%) and some other services (less than10%). As China Mobile gets into the IM market, its role as a former partner will turn into the biggest competitor of those IM providers.
“Wireless IM service boasts the highest user loyalty rates among all the value-added telecom services,” notes one analyst. “But the fact that most of its users are IM service providers will force some big SPs, particularly those with a big Internet IM user bases such as Tencent and MSN, to transform themselves into virtual network operators and provide more bundled services, such as video game and VoIP (Voice over Internet Protocol). This will severely undermine the control of operators over the industry chain.”
Take QQ for example: Tencent now has more than 492 million IM registered accounts, among which more than 200 million are active. That figure is comparable to the number of China Mobile’s service subscribers (260 million). This looming threat might explain why China Mobile might be motivated to elbow out the original wireless IM services.
Femoo, a new product from China Mobile with four versions of varied terminals, enables handset users to chat with other Femoo subscribers, either with a mobile phone or on a PC, in an interface roughly the same as MSN messenger and the Tencent QQ. If China Mobile secures a monopoly position in the IM business, handset users will only reach fixed net subscribers through Femoo. This will significantly impede the competitive advantage accumulated by QQ and MSN over the Internet. VoIP, mobile blogs and other related services will also be brought under the control of China Mobile.
China Mobile’s intervention into the IM business is just its first step in reshaping the industry chain of value-added services. A clearer picture of how China Mobile is nurturing its new data services will emerge as the 3G service market takes shape.
