A few days ago, China Mobile's chairman Xi Guohua said that the greatest threat to his company isn't from another Chinese mobile carrier -- it's social media and video messaging apps. Mobile communication has evolved from texts and phone calls to group chats and video sharing. Tech companies like China Mobile have to forgo older styles of communication, and previous revenue streams, to meet customer demands.
Call me, maybe
When mobile phones first launched, consumers used them for one purpose -- calling someone. Then text messaging and data came along, and their usage surpassed phone calls for many consumers. Now users look more to their apps to start conversations, leaving wireless carrier features less relevant.
Case in point is Tencent's popular WeChat service, which Guohua specifically mentioned as a major threat to China Mobile. The WeChat app allows users to set up private chats, group chats, send video and text messages, and even make phone calls. WeChat has about 300 million users, about the size of the U.S. population, and rumors have surfaced the app may launch in the U.S. later this year.
WeChat isn't the only app stealing traditional communication away from carriers, though. Facebook just launched a calling feature in its Facebook Messenger iOS app last month. Users with the iOS app can now call their fellow Facebook friends for free and Android and iPhone users can send short voice messages as well. Facebook's new calling feature doesn't just compete with carriers, though; it also steps on the toes of video services, like Skype.
With carriers, video apps and social media apps all competing for the same attention, carriers could see traditional revenue streams decline. Tencent's traffic is said to make up about 40% of China Mobile's data traffic, but only supplies about 1% of China Mobile's revenue. China Mobile and Tencent recently met to talk about a revenue-sharing agreement so that both companies could benefit from Tencent's popularity.
Mobile carriers aren't going anywhere
Aside from WeChat, China Mobile sees Skype as a significant threat to the way it does business because inexpensive calls can be made to phones, as well free voice and video calls to and from computers and smart devices. Along those same lines, Facebook could also eat into traditional phone usage and increase data traffic for wireless carriers here in the U.S.
WeChat, Facebook Messenger and Skype won't eliminate the need to for wireless carriers, but they are changing how consumers use their data, talk and text plans. Investors need to see China Mobile, as well as American carriers like Verizon and AT&T, adapt to changing consumer habits. With social media apps using more data without providing additional revenue for the carrier, companies will have to find ways to either cut back on usage or charge more for it - the latter being the most logical.
China Mobile has 700 million customers and counting, so it's not going anywhere anytime soon. But it's role may be changing from providing features for communication, like talk and text, to just simply a wireless connection for customers. For investors, it's no longer enough to see a carrier have a great network with great phones. They need to see carriers instituting innovative ways to benefit from increased mobile traffic from apps, like revenue sharing. Mobile users will move quickly from one new feature to the next, and its up to China Mobile and other carriers to find ways to benefit from their habits.
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The article The Chairman of the World's Largest Mobile Carrier Is Afraid of This originally appeared on Fool.com.
Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of China Mobile and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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