The Curious Case of WeChat and Net Neutrality in China

April 8th, 2013 by · Leave a Comment

For the past several weeks, a drama has played out in the Chinese press surrounding the messaging app WeChat. You see, users are up in arms over the possibility that the government won't let the company that runs the service keep not charging for it.

The Tencent's president, Liu Chiping, and its CEO Pony Ma have been quoted almost daily saying that they're not going to make users pay for WeChat, which has a vast number of users said to number more than 300M. And no big surprise there, as demonstrated by a poll of Chinese users of the app on Friday that said that 90% of them would stop using it if it weren't free, moving to any one of several free alternatives.  I sense a humongous game of whack-a-mole developing.

But government representatives have been talking about making users pay for it anyway, and has asked network operators to suggest ways how to make this dream happen.  Not all apps, just the one...  Hmmm, ask network operators what would be a good way to charge for an OTT service they desperately want to kill, and perhaps set a precedent for future OTT services they would also like to kill.  Kinda hard to predict the outcome there.

The idea is being couched in terms of the usual 'helping contribute to network investment' argument, but it's not as if there is an all-you-can-eat problem here where it's difficult to charge for data. This is a market that is almost entirely pre-paid, with metered usage and all that.  It's expensive to be a mobile data hog here, but next to the number of bits being used on video here, WeChat is at most a drop in a King-Kong sized bucket.

But the obvious subtext is the loss of the SMS messaging revenue to which operators have become accustomed and now feel entitled. Like in Europe, it's a great business when you can get it because it's overpriced.  It then helps operators subsidize the very underpriced data plans that prove why it's overpriced by enabling the OTT operators that they wish would go away or be forced to collect money for them.

The obvious solution ought to be easier in China than it is in Europe or the US: raise data plan prices to better reflect the cost of offering data services so that a network operator is happy to see people send more bits across its network. No collusion worries here, after all this is a country where the government choreographed its own industry-wide telecom M&A consolidation event a few years back.

The operator with the biggest issue is China Mobile, most of whose WeChat Problem is on 2G and gives them a signaling headache.  They can't raise prices on without losing customers to 3G competition, simply because the price for running the tables on 2G means they have to defend that position for 3G.  But how it make sense to help China Mobile defend its 2G position while claiming to help investment in new networks is beyond me.

As for how WeChat makes money off a free app, that's TenCent's and Liu Chiping's problem, and we really don't want to depend on their success in doing so for the overall happiness of the telecom sector - trust me.

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Categories: Government Regulations · Wireless

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