Tencent Finds ‘Preliminary’ WeChat Solutions for Carriers

Billionaire Ma Huateng, chairman of Tencent Holdings Ltd. (700), said China’s largest Internet company has “preliminary solutions” for state-owned carriers concerned that Tencent’s instant messaging app is hurting their profits.

Tencent worked with operators for the past month to resolve the situation, Ma said at the Global Mobile Internet Conference in Beijing yesterday without providing details. Tencent’s move comes as the popularity of its WeChat service eats into the text-messaging revenue of carriers including China Mobile Ltd. (941), the world’s largest phone company by subscribers.

“‘With rapid development of the mobile Internet, we are now facing a big issue, which is the relationship between mobile Internet companies and the traditional wireless carriers,’’ Ma said. ‘‘They should work together for mutual benefit.’’

Shenzhen-based Tencent is counting on the free app’s more than 300 million users to open doors to consumers who are spending more time on their smartphones and tablet computers. The company is planning to introduce lifestyle and interactive entertainment services on WeChat and is studying ways to commercialize the app to generate revenue.

Tencent shares have gained 11 percent in Hong Kong trading this year, compared with a 1.7 percent increase for the benchmark Hang Seng Index.

China Mobile

WeChat poses a challenge for China Mobile, where revenue for text messaging, its most profitable business, fell 4.8 percent to 44.2 billion yuan ($7.2 billion) last year, according to data compiled by Bloomberg.

‘‘Today’s environment is very different from the past,” China Mobile Chief Executive Officer Li Yue said after the company announced 2012 financial results in March. “Today, you have companies like Tencent.”

While China Mobile’s wireless data volume almost tripled last year to 1.04 trillion megabytes, sales only rose 54 percent. Unlike traditional texts, where the carrier charges the user per message, WeChat and other messaging apps ride on top of a user’s Internet connection.

China’s three largest wireless operators are competing for third-generation network subscribers and run the risk of losing customers to their rivals if they charge clients for WeChat, Alicia Yap, an analyst at Barclays Plc in Hong Kong, said in a report last month.

“In the past month, we worked with the operators and figured out a lot of preliminary solutions,” Ma said. “I don’t think this is a big issue.”

Alibaba, Sina

The company has yet to make money from the app amid new competition from Alibaba Group Holding Ltd., which last month bought a stake in Sina Corp. (SINA)’s Weibo, China’s largest Twitter-like service, to boost popularity on mobile devices.

Tencent’s net income is projected to rise 22 percent to 15.5 billion yuan this year, according to the average of 19 analysts’ estimates compiled by Bloomberg. That’s less than half of the 56 percent growth in 2010 and would be the slowest pace since a 10 percent gain in 2005, according to data compiled by Bloomberg.

The mobile app is projected to have at least 400 million users by the end of this year, according to Barclays’s Yap. If WeChat provides gaming services, it could produce annual revenue of as much as 2.16 billion yuan, she wrote.

WeChat’s core functions allow users to send text, image or audio messages. The audio message function is similar to an application from WhatsApp Inc. WeChat’s photo-sharing function called “Moments” operates with a timeline and cover-photo layout similar to that of Facebook Inc.

Hangzhou-based Alibaba, China’s largest e-commerce company, agreed to buy an 18 percent stake in Sina’s Weibo unit last month, with an option to increase its holding in the message service to 30 percent. The companies also agreed to cooperate on online payments and marketing.

Alibaba could use Weibo’s popularity with mobile users to expand its mobile e-commerce business, said Thomas Chong, an analyst at Bank of China International Holdings Ltd. in Hong Kong.

To contact Bloomberg News staff for this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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