China MNOs close ranks against OTT threat

Shiv Putcha/Ovum
16 Apr 2013

There has recently been a lot of news from China about possible changes to Tencent’s popular WeChat service.

The first news reports circulated in February 2013 about China’s mobile network operators (MNOs) demanding compensation for the high strain the service places on network resources. The debate reached new heights when the head of the Ministry of Industry and Information Technology (MIIT), Miao Wei, publicly commented that the MNOs’ demands were reasonable.

While no resolution to this “crisis” has yet been reported, the final outcome will have significant ramifications, not just in China, but on a global scale as MNOs continue to deal with the impact of over-the-top (OTT) services on their business models.

Tencent’s WeChat is a hot commodity and an OTT giant

Tencent is one of China’s premier tech giants. It provides a host of Internet services, the best known being the popular QQ instant messaging service. Tencent launched WeChat (known as Weixin in China) in 2011 with a focus on the smartphone segment, which was then nascent but had high potential. WeChat has grown rapidly, and now boasts over 300 million registered users and a reported monthly active user base of over 100 million.

Increased mobile broadband penetration in China, the availability of affordable smartphones, and WeChat’s blend of social messaging and push-to-talk features have combined to make WeChat the fastest-growing messaging platform in the world. It has already started to establish itself internationally, with over 40 million users spread across Indonesia, Thailand, India, and now the US.

At present, WeChat is free to use, although Tencent is exploring various monetization options. As Tencent experiments with monetizing the service there is no question that it has already had a significant impact on the messaging revenues of MNOs in China. Ovum estimates that they have already lost nearly $1.5 billion in SMS revenues due to a strong substitution effect.

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