NetEase, China Telecom partner in effort to take on Tencent


China Telecom (CHA +1.4%) and NetEase (NTES +7.2%) are creating a JV that will launch YiChat, a "social" smartphone messaging app.

The companies are clearly looking to challenge 800-lb. gorilla Tencent (TCEHY.PK) and its dominant WeChat mobile messaging/social networking platform. WeChat's monthly active users rose another 21% Q/Q in Q2 to 236M. Moreover, Tencent boasts average daily usage of 5.3x/user/day.

WeChat's traffic-hogging ways have upset Chinese carriers. However, Tencent stated in May it has reached "preliminary solutions" (likely involving payments to the carriers) to address the issue.

NetEase and China Telecom assert YiChat will be differentiated by its support for free text and voice messages (whether or not the recipient has installed YiChat), as well as by noise-reduction tech and the bundling of "free data promotional packages."

China Mobile (CHL +0.5%) is also trying to challenge Tencent, courtesy of its Fetion messaging platform. Fetion claimed 99M active users earlier this year, but its growth has been notably slower than WeChat's. SINA's Weibo microblogging platform (now backed by Alibaba) also competes in this space.

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