TELECOMS: China Mobile Gets Serious On Internet Services
Bottom line: China Mobile’s launch of a new Internet services unit, Migu, is a good and needed move conceptually, but will fail to innovate and succeed due to a bureaucratic corporate culture.
I have very mixed feelings on leading telco China Mobile (HKEx: 941; NYSE: CHL), which mostly seems like a slow-moving, highly protected state-run behemoth but at times also seems to have some innovative instincts. The company’s new launch of Migu, a unit dedicated to developing Internet content and services, seems to fall in the latter category, and is long overdue. But the launch of Migu is quite late and will have a lot of catching up to do, and is almost certain to be hampered by China Mobile’s slow-moving corporate culture that has little experience developing products for the fast-changing Internet market.
I had big hopes for China Mobile 3 years ago, when its conservative and long-serving chairman Wang Jianzhou finally stepped down and was replaced by a newer generation of younger leaders. But its new top management team led by Chairman Xi Guohua and CEO Li Yue has been quite a disappointment, proving it will be hard to create entrepreneurial companies out of the nation’s big 3 telcos that are all headed by bureaucrats with technical backgrounds.
China Mobile has watched passively as its profits stalled in 2014, ending years of rapid growth as it feasted on the world’s largest telecoms market where it enjoys a near monopoly granted by Beijing. But now new subscriber sign-ups have slowed sharply as the market reaches the saturation point. Adding to the company’s woes are a new generation of mobile Internet-based products and services, most notably Tencent’s (HKEx: 700) WeChat, which have led mobile subscribers to abandon traditional voice and text messaging services that were 2 of China Mobile’s main revenue sources.
China Mobile has finally responded to the threat after first noticing the trend several years ago, and this week has formally launched Migu to be run as a separate unit offering Internet-based products and services. (English article) I should credit the cash-rich China Mobile with at least giving Migu the money it will need to succeed. Media previously reported China Mobile will pump 7.1 billion yuan ($1.1 billion) into Migu to get it started this year, and will provide 10.4 billion yuan over the longer term.
China Mobile already operates a number of Internet-based products and services, which will be rolled into the new Migu. One such service is former high-flyer Fetion, an Internet-based text messaging provider that was once quite popular but has faded into obscurity over the last 2 years. China Mobile previous announced its intent to overhaul Fetion to regain some of the text messaging business it was rapidly losing to WeChat, and last fall was reportedly in talks with e-commerce giant Alibaba (NYSE: BABA) for such a move. (previous post)
I’ve been a China Mobile user for years, mostly due to its good network coverage, and can honestly say I’ve never heard of or used any of its Internet products or services. I suspect that many of its other 800 million users would say the same thing, reflecting the fact that the company has been mostly inept at developing such services that will clearly become a key element for earning money in the mobile market of the future.
I do have to commend China Mobile for at least finally taking this step to create an Internet-specific unit like Migu, which can devote its attention to future web-based products and services. But that said, the new company will probably be as slow-moving and bureaucratic as its parent, and will ultimately fail to develop many successful new products. China Mobile’s shares have rallied 28 percent over the past year, mostly on big hopes for its new 4G service. But I expect the rally will run out of steam this year, as the company reports more declining profits and the new Migu and other similar initiatives quickly fizzle and fail to excite investors.
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