The tie-up between China’s largest social media company and its second-largest mobile carrier has largely gone under the radar. In fact, China Unicom’s partnership with Tencent Holdings on its WeChat mobile chatting application has garnered little mention in the media and goes unreported in equities notes for the firms, signifying a feeling that it will have a negligible effect on company earnings for the time being.
It’s no mystery why Wo Ka, the WeChat-branded sim card that China Unicom first started offering in Guangdong province last month, hasn’t generated much buzz from consumers. Rest assured, however, that internet firms and application makers that expect to proliferate on China’s mobile internet network celebrated the deal as a victory against a spiteful market regulator that makes their lives difficult.
Wo Ka isn’t much. The sim card package gives subscribers extra voice time and mobile data. It would appear to have a younger target audience as it grants users customizable emoticons – the smiley faces and characters people send to each other – among other bonuses such as 300 megabits of free WeChat usage.
It’s safe to say that better deals have existed for Chinese mobile users.
The tie-up, though, is more of an implicit deal between the state-owned operator and the internet firm, and a guarantee of sorts that the government won’t put its paws on Tencent.
In March, the Ministry of Industry and Internet Technology (MIIT) implied that Tencent’s success with WeChat was taking a toll on the profits of the three mammoth telecom operators it oversees. Minister Miao Wei said the regulator could charge Tencent for the amount of bandwidth WeChat users were using, sending a chill through China’s over-the-top (OTT) industry, where companies make apps that rely on infrastructure such as mobile internet for customers to access products.
The claim was preposterous. Mobile operators charge customers for – and profit from – the bandwidth they swallow up, whether it be via WeChat or a mobile video app such as Youku.
MIIT was loath to admit it, but WeChat was hurting text revenue at mobile operators, namely China Mobile.
Inadvertently, China’s telecom sector revealed its continued reliance on earnings from services like text, a revenue stream companies should have weaned themselves off of long ago. MIIT hoped Tencent would eventually need to charge users for WeChat, a move that would likely trim its user base that now numbers more than 350 million.
Fears faded on the potential for a fee in early May when Tencent Chairman Ma Huateng said WeChat would remain free after his company had reached deals with mobile operators. It’s unclear if the China Unicom tie-up is one of those agreements. Nevertheless, it promises a better relationship in the future between the state-controlled mobile operators and internet firms.
“The bigger story is that this partnership will fundamentally disrupt the status quo in China’s telecoms market, where mobile operators have generally avoided partnerships and have strongly defended their competitive turf,” Shiv Putcha, principal analyst at London-based consultancy Ovum, wrote in a report in late August. Putcha said the partnership makes more sense for operators than trying to compete directly with social media platforms.
The knot between the state and its competitor has been tied, giving a green light to others in the industry to pursue similar deals. Now Tencent and China Unicom can focus on forging packages that the market really wants – not just extra emoticons to pester friends with.