Please ensure Javascript is enabled for purposes of website accessibility

Innovation or Stagnation in the Chinese Mobile Market?

By Dan Newman - Apr 3, 2013 at 8:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What do moves by the Chinese government say about investing in the country?

Chinese cellular service providers are not happy with competition, and they've enlisted the help of a government ministry to help find a solution. However, this kind of state intervention against new technologies could set a tone for the future of Chinese innovation, and could base investing in China much more on government policy than a company's merits.

The disruption
With the rise in popularity of Tencent's WeChat application, which subverts the mobile companies' usual text and multimedia message plans, China Mobile (CHL), China Unicom (CHU), and China Telecom (CHA) have been talking with the Ministry of Industry and Information Technology to look into ways to charge for the free application. Because of WeChat and similar services, the telecom companies not only get stung by a drop in traditional messaging, but typically provide location services used by the app for no charge. Because of the potential hit to revenue, China Unicom CEO Chang Xiaobing hopes that services like WeChat will be "free today, for-pay tomorrow."

For an example of the slowing text use, take China Mobile. Even though its users still sent 8 billion more text messages in 2012 compared to 2011, that growth amounted to a little over 1%. However, the newer messaging services like WeChat require data usage, and China Mobile's wireless data traffic increased over 280% from 2011 to 2012. While WeChat's 300 million users use fewer conventional texts, they continue to gobble up data.

Globally, the volume of texts is expected to increase nearly 60% by 2016, but during the same time, instant messaging will more than quadruple and double its share of the messaging market to about 35%.

Users of WeChat have expressed their rage over any plans to charge for the service, but if the MIIT obliges the phone companies and implements new fees, it's likely another free service will take WeChat's place. Investors in Tencent also lost some faith when the MIIT hinted at such a charging scheme for the application, sending the stock down over 1.5%. In the meantime, the dispute raises many questions for business in China. Will the government hamper new business at the expense of innovation to enrich established corporations? How much control can the government wield over new services, and is it possible to regulate every new threat? How can investors protect themselves from such unforeseen regulatory action?

On the other hand
The MIIT is also opening up competition in China's mobile industry, allowing mobile virtual network operators to begin leasing network access from current network operators and reselling it to consumers. This could allow Tencent to run its own wireless service, although it would still have to come to an agreement with current network providers. The mobile Chinese market remains a dynamic and quickly changing story.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

China Mobile Limited Stock Quote
China Mobile Limited
China Unicom (Hong Kong) Limited Stock Quote
China Unicom (Hong Kong) Limited
China Telecom Corporation Limited Stock Quote
China Telecom Corporation Limited

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.