Mobile apps bite into industry's revenues through free services

China Mobile Ltd, the world's biggest telecom carrier by subscriber, is facing a stronger challenge from Internet companies than its traditional telecom rivals, according to its chairman, Xi Guohua.

A service counter at a China Mobile Ltd office in Nantong, Jiangsu province. The company's revenues from its short messaging service fell to 46.5 billion yuan ($7.46 billion) in 2011 from a peak of 53.6 billion yuan in 2009. [PROVIDED TO CHINA DAILY]

Speaking to China Daily on the sidelines of the Mobile World Congress in Barcelona, Xi said his company has had to adjust its strategy to take on what are being commonly referred to in the industry as "over-the-top", or OTT, service providers.

He explained that telecom operators are now competing on two main fronts: from rival carriers and the OTT providers, which are making their way onto handsets through mobile app stores and offering new communications services for users, often for free, which work without the need for the operator's networks.

"Challenges from Internet companies are more severe because some OTT services are an alternative to those of telecom carriers'," Xi said.

"China Mobile cannot block this trend and must adjust its strategies in order to adapt to the new situation," Xi added.

The short messaging service, for instance, once a major revenue driver for China Mobile, is now under attack from various online instant messaging tools.

Tencent Holdings Ltd's WeChat, for instance, is one of the most significant new players, and is having a strong impact on how people communicate in China.

It can send text and voice messages, and photos at much cheaper rates than traditional short messaging or multimedia messaging services offered by telecom operators.

Launched in January 2011, it already has 300 million users.

In contrast, China Mobile's revenues from its short messaging service fell to 46.5 billion yuan ($7.46 billion) in 2011 from a peak of 53.6 billion yuan in 2009.

Xi said the business structures of mobile operators have to change dramatically as traditional voice and messaging services wither.

"The most important task for mobile operators nowadays is mobile traffic management," Xi added.

"Data traffic is growing exponentially, and the revenue generated from that has become the main source of growth."

China Mobile's data traffic volume increased by 187 percent year-on-year in 2012, influenced strongly by the increasing popularity of smartphones in China.

According to the latest report from research firm Flurry, China has surpassed the United States to become the world's largest market for smartphones, with 246 million active devices in the country.

Xi said China Mobile will continue to transform itself.

One of its strategies will be to set up and further develop an open platform for mobile phones.

Its Mobile Market, considered the world's largest Chinese-language application store, has provided industry partners with a platform to innovate, he said.

According to the latest figures, it has more than 1.57 million applications and has recorded 1.92 billion downloads so far.