Lenovo Group (00992.HK), the world largest PC maker, has applied for a Mobile Virtual Network Operator (MVNO) license in a bid to expand into China’s mobile market.
The move is another indication of Lenovo’s determination to transform itself from a hardware company to a software and service provider as it seeks to lift profit margins, ensure long-term and sustainable revenue streams and catch up with global peers such as Apple and Google in the software arena.
In applying for an MVNO license, Lenovo hopes to provide its own brand of mobile services to end-users by leasing existing network infrastructure from the country’s three telecommunication operators, He Zhiqiang, a senior executive at the company’s cloud services division, told mainland media recently.
The company is confident of securing a license. Government approval of its application means Lenovo will join Alibaba Group Holding, JD.com, Suning Appliances and Gome in offering mobile services to users.
Lenovo could raise concerns among its existing customers, i.e., the mobile operators, over competition in the front-end service market, but such concerns would be partly offset by the company’s need to lease their networks.
Keen competition in the hardware market is eating into the industry’s profit. Expanding its business portfolio to service and applications could create a cushion for Lenovo. In China, Xiaomi Technology is one of the first phone makers to bundle software and hardware offerings, enabling the company to sell handsets at much cheaper prices than rivals.
In fact, Lenovo could benefit from its huge exposure in the mobile device market, with around 20 percent share in China. Launching its own mobile service should help boost user stickiness to the brand.
However, as MVNO players bear a fixed cost of leasing network capacity from telecom operators, they don’t have the advantage to compete on price. Their strategy should be to offer exclusive and value-added services to attract users.
In this regard, Lenovo has launched a new video call service, which enables users of the company’s devices such as mobile phone, tablet and smart TV to conduct video meetings with colleagues, friends and family. The service also allows them to share photos during the call. The proposed MVNO business will help Lenovo push such services with its own data packages.
The company is also entering the mobile game business. It has launched a new Android-based mobile game platform with more than 10,000 titles from eight mobile game developers. Taking reference from other MVNO operations, Lenovo may offer its MVNO users free data usage if they download its mobile games. It can offer a one-stop platform for game developers to reach players and establish a new stable revenue stream from both game developers and players for sustainable growth.
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