In the space of just a half year, Internet giant Tencent’s (HKEx: 700) popular mobile messaging WeChat app has gone from obscurity, to red-hot rising star, to its latest position as a target of attack from just about everyone. The popular app has come under assault in the last 3 months from the nation’s 3 telcos, which complain that WeChat users are taking up a growing share of their network capacity. The trio have found a potent ally in the nation’s telecoms regulator, the Ministry of Industry and Information Technology (MIIT), which has stepped in to help “mediate” the dispute. On top of all that, a wave of envious rivals with copycat products is quickly appearing on the scene.
Let’s start with the latest MIIT comments, which were made by ministry chief Miao Wei at an industry event. Media are quoting Miao as saying that WeChat, which is currently free, has the potential to start charging fees, although the fees would likely be minimal. The nation’s 3 telcos would like WeChat to start charging usage fees so they can take a portion of the proceeds as part of a series of revenue sharing deals they want to sign with Tencent. (Chinese article) Miao goes on to add that his ministry won’t allow the 3 telcos, all of which are big state-owned enterprises, to abuse their monopoly status to bully Tencent into revenue sharing agreements.
Firstly, I want to give my strong view that the MIIT has no place in helping to resolve this dispute, and that similar mediation by a government regulator would never happen in a developed market like the US or Western Europe. Participation by the MIIT is even more problematic because the agency has a clear bias towards China’s 3 telcos, China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). Anyone who follows the industry will know that officials move freely back and forth between these 3 telcos and the regulator, meaning the MIIT can hardly be a fair middle man in this case. By comparison, Tencent is an entrepreneurial company that probably has few if any former MIIT officials in its ranks.
Miao’s new comments indicate that his agency is siding with the telcos and pressuring Tencent to start charging fees for WeChat, better known by its Chinese name Weixin. Tencent had previously indicated it would let the service remain free and try to monetize the platform by offering value-added services like online games and mobile shopping. If it succumbs to the MIIT’s pressure, look for WeChat’s rapid growth to stall as users defect to other free services. The case could should be an important one to watch, as it could well become a template for the kinds of relationships we’ll see between the Chinese telcos and popular app developers in the future.
Meantime, media have also suddenly started reporting on a new wave of app developers eager to copy Tencent’s success with their own copycat products. Today’s China Daily details 2 of those, including a homegrown product from a company called Longmaster, as well as the popular Japanese-developed mobile instant messaging app called Line. (English article) Rumors emerged in December that Line’s developers were in talks to bring the product to China Mobile’s network, though nothing has been confirmed. (English article)
All of this points to the fact that many of the most popular mobile apps are likely to come from independent third-party developers in the future. And in China at least, the telcos are unlikely to just sit and watch as their mobile networks allow developers of such “over the top” (OTT) services make lots of money. In the case of WeChat, I do worry that greed from the Chinese telcos will ultimately hurt or kill the service. That would be a serious setback for app developers, but perhaps a reality they will have to increasingly face in China’s fast-changing telecoms landscape.
Bottom line: A growing assault on Tencent’s WeChat by telcos and rival products could ultimately cripple the product if it starts charging for the service.
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