The rapidly changing mobile landscape is creating some interesting challenges for China Mobile (0941.HK ; NYSE: CHL), which is finally seeing its 3G market share stabilise as it reportedly may be weighing a bid to buy out the partner for its fading Fetion mobile messaging service.
The 3G news is clearly the more important in this pair of news bits, and probably reflects a combination of factors that should bode well for China Mobile as Beijing gets set to issue new 4G licences. Meanwhile, the latter rumours involving Fetion is probably more wishful thinking from Fetion's current owners, who would like to get some money for their instant messaging platform which is rapidly being overtaken by newer smartphone applications, most notably Tencent's (0700.HK)  WeChat.
Let's look at the 3G picture first, which comes with the latest monthly subscriber data from China's 3 major telcos, China Mobile, China Unicom (0762.HK ; NYSE: CHU) and China Telecom (0728.HK ; NYSE: CHA). The latest data  show China Mobile continued to lead in 3G with 37.4 per cent of the market's total 212 million users at the end of October. It was followed by Unicom with 33 per cent share, and China Telecom with 29.6 per cent.
These numbers represent a much more balanced situation among the 3 companies in 3G than we saw about 2 years ago, when China Mobile had about 45 per cent share compared to Unicom's 30 per cent and China Telecom's 25 per cent. But the rapidly shifting situation we saw for much of 2011 have slowed considerably this year, with the result that the current market share for all 3 telcos in 3G have been largely stable.
The stabilisation in market share is probably due to a number of factors, including better promotion and performance for China Mobile's 3G network, which is based on a homegrown and problem-plagued technology called TD-SCDMA. At the same time, Unicom and China Telecom have scaled back their aggressive promotion for 3G, which included generous handset subsidies that eroded their profits as they sought to rapidly gain share.
Stabilisation at these levels could be significant, because it could indicate how the market will ultimately look going forward -- a sharp contrast to the past when China Mobile controlled more than two-thirds of the country's mobile market. If that's the case, look for a much more balanced and competitive market when China ultimately issues 4G licences as soon as early next year.
Such a market would see China Mobile perhaps enjoying a slight early edge in 4G with around 37 per cent of the market, followed by Unicom with a third and China Telecom with around 30 per cent. While China Mobile would clearly like to control more of the market like it did in the past, it should also be happy that its situation is stabilising so it can plan for the future.
Meantime, media are reporting  that China Mobile may be interested in buying out the Fetion SMS and instant messaging service it offers to its subscribers from Ultrapower (Shenzhen: 300002) which developed the service and has been partnering with China Mobile since 2007. Ultrapower's top management said it has received no such offers from China Mobile, and I suspect the rumors have appeared because China Mobile and Ultrapower have yet to announce a renewal of their latest Fetion tie-up agreement which expired on October 31.
Fetion was once a fast-rising star, partly due to strong backing by China Mobile and its use of the Internet to offer mobile messaging services for free. But it is rapidly being overtaken by more innovative products with better functionality, as evidenced by the rapid rise of Tencent WeChat, known locally as Weixin.
I suspect that China Mobile may ultimately scrap its Fetion tie-up, though perhaps it will renew its agreement once more before the service finally dies a quiet death. That said, a potential buy-out seems highly unlikely, and if China Mobile is smart it will avoid similar exclusive tie-ups in the future and focus instead on its role as operator of a high-quality telecoms network.
Bottom line: China's 3G market is stabilising in terms of market share, with a more balanced field among the 3 major telcos emerging as Beijing gets set to issue 4G licences.