Unicom Sides With Tencent WeChat

Unicom favors market approach for WeChat

A new memo that has been reportedly leaked from China’s second largest mobile carrier, China Unicom (HKEx: 762; NYSE: CHU), shows the nation’s 3 telcos may not be nearly as united as many may think in their approach to Tencent’s (HKEx: 700) popular WeChat mobile app. This revelation, if true, doesn’t surprise me at all, since industry giant China Mobile (HKEx: 941; NYSE: CHL) has been leading the assault on WeChat from the very beginning, complaining the popular mobile instant messaging app uses huge amounts of its networking capacity. But it’s far from clear if the nation’s other 2 mobile carriers, Unicom and China Telecom (HKEx: 728; NYSE: CHA) share China Mobile’s discontent.China Mobile first started voicing its unhappiness about WeChat last fall, andreportedly forced Tencent into negotiations on a potential revenue sharing agreement for the service. When those negotiations failed, China Mobile used its big clout to bring in the industry regulator to mediate the dispute. To give its grievance more credibility, the Ministry of Information and Industry Technology (MIIT) also got Unicom and China Telecom to join the negotiations over WeChat, known in Chinese as Weixin.

Now this newly leaked memo seems to show that the 3 telcos are far from unified in their view on how to deal with popular apps like WeChat, which use up big volumes of mobile network capacity. The memo shows that Unicom favors working with developers of popular apps like WeChat to create win-win situations for everyone. (Chinese article) China Telecom has stayed largely silent on the issue, but previous reports have indicated the carrier also wants to follow a similar more positive approach.

Unicom’s stance is based on its belief that most popular mobile apps in the future will come from private developers like Tencent, as carriers stay focused on their core mission of providing good mobile service. In that kind of environment, Unicom believes it’s in everyone’s best interest to find ways to work constructively together to find ways that can benefit everyone.

I strongly suspect this Unicom memo was deliberately leaked by top management, at least partly as a PR ploy to portray Unicom in a more positive way in this conflict. But that said, I do also believe that both Unicom and China Telecom were probably forced to join these negotiations hosted by the MIIT, which as the industry regulator really has no place mediating this kind of dispute. As I’ve said above, I strongly suspect that the unhappy China Mobile used its industry clout to force this round of mediation on everyone, and was no doubt pleased when MIIT chief Miao Wei said just days ago that Tencent might ultimately charge fees for WeChat users. (previous post)

Unicom’s more constructive approach in this matter is more similar to what I would expect to see in the west, where companies would never work together to solve this kind of “dispute”. In fact, the kind of “mediation” now happening in China would probably be called “collusion” if it happened in the west, and would lead to an anti-monopoly or price-fixing investigation by the industry regulator. But of course in China the situation is quite different, since many of the biggest companies are state-owned and top officials move freely back and forth between those firms and the government agencies that regulate them.

So even if Unicom deliberately leaked this memo, I still commend it for its more enlightened, market-oriented approach to WeChat. China Mobile should learn something from this case, namely that it should be grateful for its industry dominating status that was a gift from Beijing. It should use that status to engage with Tencent and other popular mobile app developers to find win-win situations for everyone, rather than crying to the regulator every time it doesn’t feel like playing by market rules.

Bottom line: China Mobile should follow Unicom’s more market-oriented approach to working with mobile app developers, and the regulator should stay out of such matters.

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