Major carriers turn to Internet innovation

The plan appears to involve integrating the company's nine Internet business centers across China, which are involved in gaming, music streaming and online reading material.

Analysts are not convinced if this is the right road to take.

"The new branch is a baby born late," Fu Liang, a longtime independent telecom expert, said, adding that China Mobile announced as early as 2012 that it would set up a special Internet unit.

"In fact, China Mobile missed a golden opportunity back then to promote a mobile Internet business. But it still has a chance to rectify that," he added.

"In the past, its Internet centers were run separately. Now the new branch will coordinate this operation."

Yet it is uncertain whether telecom carriers will be able to compete with leading Internet companies when it comes to specialized content.

"A better way is for Internet companies to work with carriers by setting up premium services for customers," Gene Cao, a senior analyst at consultancy Forrester Research Inc, said.

"They would pay, say a 15 yuan membership fee, to enjoy free data traffic, while listening to songs which are unavailable to normal users."

"The combination will enhance the appeal of premium services to customers. In this way, Internet companies can boost their revenues by offering more value-added services, and telecom carriers can also increase data traffic," Cao added.

Fu is in total agreement. The strength of the big three carriers is their sprawling infrastructure network and massive customer base.

"They are equipped with resources, which will give them a larger say in partnerships with Internet companies," he said.

In September last year, China Mobile reported that it had 823 million customers. In comparison, Tencent Holdings Ltd's WeChat, the most popular instant messaging platform in China, had just 650 million users.

But turning those strengths into lucrative revenue streams will not be easy. "The lack of Internet talent at SOEs' corporate governance structure is a bottleneck to growth," Fu said.

Still, progress is being made. China Telecom, for example, has shaken up its management structure for its Shanghai "innovation center".

As of November, the carrier had invested 50 million yuan in startups and 162 related projects. Four of them－the one set up by Liang Duguo, Shanghai Changshi Network Technology Co Ltd, Shanghai Zewei Information Technology Co Ltd－have received funding from venture capital firms.

"The innovation business is the fastest-growing department at China Telecom, with an annual growth rate of 50 percent," Li Anmin, who is in charge of the division, said. "We also plan to establish 10 more incubators across China and open the innovation ecosystem to all startups."