A Small Yet Critical Step for This Giant Telco

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A new VoIP and mobile instant messaging offering is now available. China Mobile (NYSE: CHL), the world’s largest mobile operator, has developed a new application called Jego to challenge Skype, which was acquired by Microsoft (NASDAQ: MSFT) in 2011. Jego, launched on June 1, mainly serves overseas customers, allowing them to make free or low-cost calls to mobile phones and landlines.

What does Jego do?

Jego, available on Apple’s iOS and Google’s Android platforms, can allow customers to bind their China Mobile numbers as well as to subscribe to Hong Kong online numbers, whereas customers’ call numbers can be displayed and seen by the receivers. Jego also provides instant messaging functions, as well as video calling and multimedia-sharing functions

Jego is a small step for big trends

Although most of the functions are already provided by other mobile instant messaging software, such as Tencent's (NASDAQOTH: TCEHY.PK) WeChat (former known as Weixin), LINE, and WhatsApp, Jego is an important step for China Mobile to counter the trend shifting toward mobile instant messaging. However, Jego’s real competitor is Skype, offering VoIP services.

Jego’s rate is competitive as compared to Skype. Whereas Jego will cost $0.022 per minute while Skype’s pay-as-you-go costs $0.023 per minute (excluding tax) plus a $0.049 connection fee. Although Jego is priced competitively, it still needs to show it can beat Skype’s value offerings, enabling clear and reliable VoIP communication functions with strong integration capabilities. In essence, with Jego, China Mobile is trying to create its own presence in the mobile instant messaging and VoIP market instead of being consumed for its own traditional carrier services.

What now?

While telecom operators worldwide have been negatively impacted by growing challenges from instant messaging and VoIP services, carriers are finding ways to counter and capitalize these trends. Jego is a small yet important step for China Mobile to explore and adjust itself from the traditional telecom market. Skype, on the other hand, was acquired by Microsoft to expand its enterprise collaboration market and to increase the competitive offerings of Windows Phone. Microsoft needs to stay competitive against Google’s Voice and Apple’s Facetime. Microsoft continues to integrate Skype into its platform and offerings, including Outlook.com (formerly known as Hotmail), as Skype’s revenue continues to grow.

Tencent, as one of China’s largest Internet service providers, remains competitive in the mobile instant messaging market with its WeChat. Tencent continues to leverage its high traffic and strong content to boost its presence in the mobile end. Tecent’s success with its QQ, which provides a total solution for Internet-based instant messaging, is further expanded with its WeChat offering.

WeChat has grown rapidly since its launch in January 2011, reaching more than 300 million users. WeChat is viewed as a gateway to mobile Internet, creating various opportunities for third parties, as said by Guan Peng, the CEO of China35.com.

With WeChat’s success, mobile operators, such as China Mobile, China Telecom, and China Unicom are arguing that WeChat uses a lot of network resources and affects the quality of other services. WeChat is also eating into the revenue of text messaging and traditional voice services offered by telecom operators. It is easy to see why China Mobile is launching Jego to counter all these trends.

Bottom line

Jego may not have much financial impact on China Mobile yet, however, it is a sign that telecom operators are fighting back with fast growing VoIP and mobile instant messaging market. While China Mobile is investing heavily into 4G infrastructure, it is also crucial for this telecom operator to find ways to counter or adapt to these growing mobile communication trends. Jego is a good sign that China Mobile is waking up.

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Nick Chiu has a long position in China Mobile. The Motley Fool owns shares of China Mobile and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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