China Mobile vs. the internet

China Mobile’s amped-up network investment plan doesn’t surprise in light of its modest result and its recently-expressed views on the rising internet menace.

It yesterday posted a 2.7% rise in earnings to 129.3 billion yuan ($20.8bn) – slightly ahead of estimates, according to a Reuters analysts’ poll, but still the slowest growth since 1999. Net income rose 5.2% in 2011.

Its now promising to spend nearly $31 billion on its GSM, 3G, LTE and Wi-Fi networks this year, including $6.7 billion on 4G. Chairman Xi Guohua says the company’s “mantra” is that “network quality is the lifeline for telecommunications companies.”

But tipping a bucket of cash over the vendor community isn't going to do much about the existential threat from OTT players that supposedly keeps Xi awake at night.

He recently described internet players like WeChat and Skype as a bigger threat than China Unicom and China Telecom - a neat putdown of his smaller rivals as well as a hint that the three are ready to band together to fight off the threat.

The Chinese web is aflame this week with speculation of a “showdown” between the telcos and the OTT guys,  including talk of forcing fees upon Tencent, the company behind WeChat. Tencent has denied this.

For all this, the evidence of serious bleeding for operators is thin.

Total SMS volume grew a little over 2% last year, but the number of texts per user fell 9.45%, as this chart from Marbridge shows. Yet the number declined 7.54% in 2011 and 6.81% in 2010.

Given that WeChat didn’t start until January 2011, it’s hard to see the trend as anything more than the natural decline in user spend.

In neighbouring Hong Kong, PCCW Mobile feels so threatened it’s actually done a deal with WeChat, offering customers all you can eat starting at HK$8 (US$1.03).  Hutchison has been offering a similar deal with WhatsApp since September.

In truth, the crimp in China Mobile’s earnings has come from its TD-SCDMA network handicap and lack of an iPhone. Both those (related) disadvantages will disappear in the 4G era.

In the meantime the company has delivered another reminder that customer-friendly innovation isn’t in its toolkit.