Last week rumors circulated that the big three Chinese operators were in talks with Tencent about WeChat’s snatching their text and voice businesses. One rumor went as far as the big three were going to charge WeChat users separately or even Tencent, WeChat’s parent company. Tencent denied the latter.

But what’s true is China Mobile, one of the three, acknowledged threat from WeChat. President of China Mobile, Li Yue, talked on a couple of occasions that their conventional telecom businesses were suffering the consequences of the rise of over-the-top services, especially WeChat. The carrier saw losses in text messages, local and international calls in terms of both usage and revenue.

Data sales cannot compensate for the loss in text messages.

China Mobile saw the annual revenue from text messages decreased by 2.2 billion yuan ($35mn) , 5%, year-over-year as of 2012, according to the the annual earnings results released last week. The ARPU reached the lowest in the past five years.

Although its mobile Internet business increased 54% with a 188% increase in data sales, it seems not enough to compensate for the loss in text messages. The company could make one hundred yuan from 1000 test messages but no more than ten yuan if those messages were sent out through WeChat, Li Yue said at the press conference after the earnings release.

 

Tencent, a frienemy

Mr. Li once accused Tencent that the massive usage of QQ IM occupied too many signaling paths that would degrade signaling performance. Now he says the same thing about WeChat. It was reported that Mr. Li visited Tencent for that issue with QQ in 2010 and started charging a fee for it ever since. That might be why people speculated the telecom giant would ask WeChat for money.

Tencent couldn’t make a penny from its already-popular-back-then IM service before China Mobile rolled out Monternet, a program that shared revenues with service/ content providers, around 2002. Users paid monthly subscription fees for QQ services through their feature phones.

But in smartphone era, services like WeChat don’t rely on operators to reach users and don’t have to share income with them. WeChat representative, in response to the rumor mentioned, said that value-added services or content on top of the mobile chatting app would help operators increase user loyalty and ARPU. He added that they’d want a win-win situation with operators, and nowsdays the room for cooperation could be even bigger than Monternet times.

The chairman of the board of China Mobile, Qi Guohua, buys the idea, saying channels like Tencent would help them get new customers.  “(VoIP) as a technological innovation is unavoidable that no force can stop it. We have to face it”, he said so and counts on data sales, “we’d increase investment in network coverage. That’s our core competence as a traditional operator. That’s what over-the-top companies cannot do.”

Anyhow, WeChat itself hasn’t started monetizing its user base. Pony Ma, CEO of Tencent, told media recently that it took time to build any monetization model, sense-making or not, while outsiders had suggested tons of models.

It was reported that Chinese authorities would release licenses for mobile virtual network operators (MVNO) this year. It is expected that Internet service or content providers like Tencent would pay operators for using infrastructures and come up with new services. Pony Ma has made it clear that Tencent wouldn’t apply for a license. China Mobile president said they hadn’t decided who to work with on that.

image credit: Morningpost.com.cn