Bottom line: The MIIT should be commended for resisting pressure by China’s 3 telcos to ban free private voice services for enterprise customers, but should move quickly to show it will license such service providers like DingTalk and WeChat.
The ongoing battle between China’s big 3 state-run telecoms carriers and an emerging field of private sector challengers was in the headlines last week, when rumors emerged that the regulator was set to stop private firms from offering free voice services for business customers. The move looked set to potentially shut down popular services provided by Internet giants Tencent (HKEx: 700), Alibaba (NYSE: BABA) and others, before the regulator clarified that licenses were needed for companies to provide such voice services. (Chinese article)
At least one company, Alibaba’s DingTalk, announced it would suspend its free voice service for business customers as of July 1, without providing additional explanation. (Chinese article) Another enterprise service operated by Tencent’s popular WeChat said it hadn’t received any notification yet, even as the possibility of a similar shutdown loomed.
The Ministry of Industry and Information Technology (MIIT) should be commended for coming out quickly and trying to clarify the situation, and also for resisting pressure from China’s big 3 carriers to impose an outright ban on an emerging field of companies offering low-cost or even free voice services to business customers. At the same time, the regulator should suggest to big state-run carriers, especially the cash-rich China Mobile (HKEx; 941; NYSE: CHL), that they too could try to innovate in the space to compete with these new rivals, rather than seeking protection from Beijing.
Such competition and resulting innovation would ultimately benefit the carriers themselves, as it would force them to create cutting-edge products and services that could someday provide important new revenue sources. Such services could also help them to move beyond their protected home market and export their skills and know-how across the globe.
China’s big state-run carriers held a state-granted monopoly on the nation’s telecoms services market for the 1990s and first decade of the 21st century, as sole owners and operators the big networks necessary to offer voice and Internet services. But they began to lose their grip on the market around 2010 when private companies began to offer “over the top” (OTT) services that often used the Internet to offer voice and other telecoms services using self-developed apps.
In the west one of the earliest and best-known players in that space was Skype, while in China the most famous among the group has been Tencent’s wildly popular WeChat mobile messaging service, which also includes voice features. China Mobile got into a high-profile spat with Tencent in 2013, when the former accused the latter of operating a stealth telecoms network that violated the monopoly of the nation’s 3 state-run carriers.
In a scenario that has become increasingly common in the OTT services era, China Mobile asked for intervention from Beijing. But the MIIT ultimately declined and said the matter was a commercial one that should be directly handled directly by the 2 sides themselves.
The latest instance involving enterprise voice calling services looks similar, and was among a list of grievances reportedly handed by the 3 carrier to the MIIT last year. Unlike WeChat, the services at the heart of the latest dispute specifically involved voice calling for business customers, typically a more lucrative group than ordinary consumers who are often reluctant to pay for such services.
By offering business customers such services for free, often using company-supplied subsidies, the private companies like DingTalk and WeChat were potentially threatening an important revenue source for the traditional carriers. Alibaba, Tencent and many other Chinese Internet companies often use such subsidies very aggressively to quickly gain market share, and the state-run carriers themselves also use such subsidies by offering cheap or free smartphones to users who sign long-term contracts.
After studying the issue, the MIIT said on its official microblog that enterprise voice calling services fell into a category that required a specific license. It was unclear if the regulator was prepared to offer such licenses to services like DingTalk and WeChat, or if it planned to use that finding to stop private companies from entering the space and protect the 3 big state-run carriers.
The MIIT’s quick moves to clarify the situation are commendable and reflect its attempts to be more transparent and avoid confusion in the market. But it should follow quickly by further clarifying it intends to offer licenses to DingTalk, WeChat and other applicants, as part of a broader market opening that is slowly transforming China’s laggard telecoms services sector into a more world-class player.
- TELECOMS: China Telecom Zips in 4G, Unicom Lags
- TELECOMS: China Mobile Surrenders to WeChat, Youku
- TELECOMS: Colluding China Telcos Resist End to Roaming Fees
- Today’s top stories
(NOT FOR REPUBLICATION)