Light Reading

OTT Charges: The China Syndrome

Light Reading
News Analysis
Light Reading
4/8/2013
50%
50%

The debate swirling around potential over-the-top (OTT) service fees has reached fever pitch in China, with the highly popular WeChat smartphone application at the center of the storm.

The WeChat app, which enables a range of voice, video and messaging capabilities and which is currently free, has more than 300 million users in China. That level of popularity has been good news for the app's developer, Shenzhen-based Internet technology firm Tencent, but not so great for the network operators given the task of delivering the resulting data traffic: Senior executives from China Mobile Ltd., the country's biggest operator, have complained publicly on a number of occasions about the burden of carrying WeChat traffic.

So when China's top telecom official Miao Wei, the Minister of Industry and Information Technology (MIIT), signalled his support for charging a fee for WeChat usage, the OTT fee debate became big news.

Following weeks of speculation about the possible imposition of a fee for WeChat, Miao told a local newspaper that a fee was "likely," though he also distanced himself from any involvement in proposing any details, leaving that burden with China's main mobile operators.

Miao, though, said the operators' demands were "very reasonable," and that the firms needed to be able to continue to invest and operate their networks.

Ministry officials and executives from the mobile operators and Tencent reportedly discussed the issue of fees at meetings in February and March.

But Tencent's President, Lau Chi Ping, has reportedly stated that it is "unlikely" to charge a fee for its app as users are already paying for Internet access as part of their mobile subscriptions. That's a position previously stated by CEO Pony Ma.

That puts Tencent quite firmly in the anti-OTT charges camp (as you'd expect) but doesn't rule out the prospect that WeChat might carry some sort of charge in the near future.

Keeping customers happy
If any kind of WeChat-related fee is imposed, it will be the first OTT app-related tariff in a major telecom market. Other markets, in Europe in particular, have voiced support for slapping charges on OTT apps, but none has committed to what would be an unpopular move with customers.

And customer power is important, even in a one-party authoritarian state such as China. Politicians in Beijing are particularly sensitive to public opinion, which these days manifests itself primarily via social media, including WeChat, and the app's users are unlikely to accept the loss of their free texts and photo swapping without a vigorous outcry.

Fang Xingdong, Web services entrepreneur and the founder of blogchina.com, sent a clear message in a microblog message (forwarded nearly 1,700 times) by declaring that any WeChat fee would "become the most serious battle so far over China's internet."

And it's a battle that not everyone seems willing to fight. While China Mobile, which has more than 720 million customers, is keen on OTT compensation, it may struggle to get the full support of the country's smaller wireless carriers, China Telecom Corp. Ltd. and China Unicom Ltd.

For that duo, both of which are selling versions of the iPhone, WeChat is an effective tool that helps them snatch customers away from the market leader, which is handicapped by the world’s only TD-SCDMA 3G network and a limited handset range that doesn't include the iPhone.

China Telecom chief Wang Xiaochu told the company's annual results press conference on March 20 that data had become a core service for the company, and he saw "no current contradiction" with WeChat.

China Mobile's OTT problem
It's fair to say that China's OTT-related capacity crunch is almost wholly China Mobile's problem. While WeChat traffic accounts for just 10 percent of its data traffic, the app occupies 60 percent of its signalling capacity because of its "always-on" function.

That signalling crunch is particularly severe because the vast majority of China Mobile's customers are still on its 2G network, with just 105 million customers (about 14.5 percent of the total) on its more data-friendly 3G network.

China Unicom and China Telecom, which have WCDMA and CDMA EV-DO networks respectively, have a much higher proportion of 3G users. (Yet China Mobile generates a higher proportion of revenues, 28.5 percent, from data traffic, compared with 19.9 percent and 14.0 percent from Unicom and Telecom respectively.)

No wonder, then, that China Mobile CEO Li Yue recently issued an arguably over-the-top statement about the impact of OTT services. He claimed that operators all around the world had been hit by large-scale outages and warned that without cooperation from OTT providers, "we can't provide services for long."

In the meantime, all three major operators are either revamping existing messaging services or introducing new ones in order to compete with WeChat.

Who pays?
Of course, there is a solution to the current situation that would avoid any direct fees for customers and, at the same time, forge cooperation between Tencent and the operators.

Rather than pass on fees to users, the company may seek to strike a deal directly with the operators. In that scenario, the carriers would still have a free chat app to contend with, but they would have satisfied their "very reasonable" requests for compensation and avoided a major confrontation with their customers. For more on that scenario, see this Electric Speech blog.

Having won the ministry's backing, it is now up to the operators to figure out a plan.

— Robert Clark, contributing editor, special to Light Reading

(2)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Ray Le Maistre
50%
50%
Ray Le Maistre,
User Rank: Light Sabre
4/8/2013 | 11:54:24 AM
re: OTT Charges: The China Syndrome
Of course, if Tencent agrees to compensate China Mobile and the other operators, then what pressure will that put on other OTT firms and on operators/legislators/regulators in other markets? This is a big test case for the global industry.
Flash Poll
From The Founder
Ericsson's Hyperscale Datacenter System (HDS) 8000, featuring Intel's Rack Scale Architecture, caused a stir when it was announced at MWC 2015. For more on this revolutionary product, join me on Thursday, April 30 at 12:00 p.m. EST for a Super Webinar event, A New Hardware Paradigm for the Telco Data Center.
LRTV Documentaries
CableLabs' Clarke Updates Cable Virtualization

4|23|15   |   05:41   |   (1) comment


Former BT exec now leading CableLabs' NFV and SDN efforts explains key role of open source and updates efforts to virtualize the home network.
LRTV Interviews
Ericsson's CTO Talks Transformation: Pt. II

4|23|15   |   08:19   |   (1) comment


In the second installment of an in-depth two-part interview, Ericsson's CTO Ulf Ewaldsson talks to Light Reading CEO and founder Steve Saunders about cultural change, network slicing and technology advances.
LRTV Interviews
Ericsson's CTO Talks Transformation: Pt. I

4|23|15   |   09:27   |   (3) comments


In the first installment of an in-depth two-part interview, Ericsson's CTO Ulf Ewaldsson talks to Light Reading CEO and founder Steve Saunders about the incredible transformation underway in the communications networking industry.
LRTV Documentaries
LTE Paves the Way for the 5G Revolution

4|20|15   |   4:20   |   (0) comments


Håkan Andersson, head of 5G product strategy of the Radio Business Unit at Ericsson, discusses the role of LTE, the US and other industry verticals in building a true 5G ecosystem.
LRTV Documentaries
The 3GPP's Road to 5G Standardization

4|17|15   |   4:43   |   (0) comments


Satoshi Nagata, chairman of the 3GPP's TSG-RAN group and a manager at NTT Docomo, explains the standardization process for 5G, as well as the biggest challenges and opportunities.
LRTV Documentaries
AlcaLu CTO Makes the Case for a New 5G Air Interface

4|16|15   |   3:54   |   (0) comments


Michael Peeters, CTO of wireless at Alcatel-Lucent, explains why 5G will require a new air interface to meet its diverse performance targets.
LRTV Documentaries
AlcaLu + Nokia: The New Uber-Vendor

4|15|15   |   2:42   |   (4) comments


Heavy Reading Senior Analyst Gabriel Brown discusses the technological and competitive opportunities and challenges if a merger between Alcatel-Lucent and Nokia comes to pass.
LRTV Huawei Video Resource Center
Huawei's Data Center Power Play

4|15|15   |   6:22   |   (0) comments


Huawei has developed industry-leading energy efficiency capabilities for its indoor and outdoor data center solutions, explains Dr. Fang Liangzhou, vice president of Huawei's Network Energy product Line.
LRTV Huawei Video Resource Center
Huawei’s Routers, Switches Get the Green Mark

4|15|15   |   2:02   |   (0) comments


TUV Rheinland's Frank Dudley explains how Huawei's routers and switches have been successfully tested by energy efficiency experts and have gained Green Mark Certification.
LRTV Documentaries
A Finn, a Frenchman & a Guy From New Jersey Walk Into a Merger...

4|15|15   |   3:17   |   (0) comments


Stop us if you've heard this one before... Light Reading CEO Founder & CEO Steve Saunders weighs in on the technical and cultural implications of a Nokia and Alcatel-Lucent merger.
LRTV Huawei Video Resource Center
Accounting for Better Solutions

4|10|15   |   02:31   |   (1) comment


Murad Yousuf, CTO at Saudi Arabia's Ministry of Finance (Dept. of Zakat & Income Tax), talks about the benefits of deploying router technology from Huawei.
LRTV Huawei Video Resource Center
What's in Store for Huawei & DataCore?

4|10|15   |   05:44   |   (0) comments


At the CeBIT trade show in Hannover, Germany, George Teixeira, CEO of software-defined storage (SDS) specialist DataCore Software, explains why he has just signed a partnership agreement with Huawei Technologies.
Upcoming Live Events
May 6, 2015, Georgia World Congress, Atlanta, GA
May 12, 2015, Grand Hyatt, Denver, CO
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 8, 2015, Chicago, IL
June 9-10, 2015, Chicago, IL
June 9, 2015, Chicago, IL
June 10, 2015, Chicago, IL
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
October 6, 2015, Westin Peachtree Plaza, Atlanta, GA
November 11-12, 2015, The Westin Peachtree Plaza, Atlanta, GA
All Upcoming Live Events
Infographics
In its latest survey covering network operators' plans and strategies for ICT transformation, Heavy Reading asked telecom operators worldwide to identify the most important goals and objectives for their ICT transformation initiatives. Heavy Reading also asked operators about the importance of a "digital first" strategy, which enables customers to complete an interaction across different digital channels, such as web and mobile self-service and social media.
Hot Topics
What if the Comcast Merger Fails?
Mari Silbey, Independent Technology Editor, 4/20/2015
Google's WiFi-First Mobile Service 'Fi' Is Here
Dan Jones, Mobile Editor, 4/22/2015
Comcast Merger May Hinge on Hulu
Mari Silbey, Independent Technology Editor, 4/22/2015
Google Ready to Release Thousands of Loons
Sarah Thomas, Editorial Operations Director, 4/20/2015
Comcast Formally Ends Its Bid for TWC
Mari Silbey, Independent Technology Editor, 4/24/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Many leading communications companies can claim to have undergone significant periods of reinvention during their histories, but none have been through more major ...
Data Center Interconnect, or DCI, is one of the hottest sectors in telecom currently. Since coming back to Light Reading last year, prodigal-son style, I've ...
Cats with Phones
Learning Curve Click Here
Pierre could never remember how to use Excel.
Latest Comment