Light Reading

OTT Charges: The China Syndrome

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

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
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
LRTV Custom TV
Optimizing SDN & NFV Architectures Through Application Awareness

4|23|14   |   6:24   |   (0) comments


Jerome Tollet, CTO at Qosmos, explains how network equipment vendors and operators deploying SDN and NFV can take advantage of network intelligence delivered by DPI to strengthen products and services.
LRTV Custom TV
Wind River Demonstrates Carrier-Grade Software for NFV

4|22|14   |   5:00   |   (0) comments


Wind River VP of Product Management, Glenn Seiler, takes a look the industry's first and only complete NFV software platform designed specifically for the unique carrier-grade and high-performance needs of telecom networks.
LRTV Documentaries
Cable Eyes Big Technology Shifts

4|16|14   |   03:02   |   (4) comments


US cable engineers are facing a lot of heavy lifting in the coming years, notes Light Reading Cable/Video Practice Leader Alan Breznick.
LRTV Custom TV
Maximizing Customer Experience & Assuring Service Delivery in an IP World

4|15|14   |   4:57   |   (0) comments


Steven Shalita, VP of Marketing, NetScout Systems, Inc., discusses the challenges cable/MSO operators face in assuring the delivery of new IP-based services. Key points include the value of proactively managing performance, and using rich analytics and operational intelligence to better understand service and usage trends, make smarter business decisions and ...
LRTV Documentaries
Bye-Bye DVD: Consumers Embrace Digital Video

4|10|14   |   04:17   |   (7) comments


Veteran video analyst Colin Dixon, founder and principal analyst of nScreenMedia, says research shows 56% are using digital video already.
LRTV Documentaries
Video: TW Cable Puts Multicast Gateways to the Test

4|8|14   |   04:13   |   (1) comment


Tom Gonder, a chief architect at Time Warner Cable, explains how its trial of multicast gateways is impacting IP-based video plans.
LRTV Custom TV
Managing & Monetizing Big Data in Operator Environments

4|7|14   |     |   (1) comment


At Mobile World Congress, Gigamon's Director of Service Provider Solutions, Andy Huckridge, and Heavy Reading Analyst Sarah Wallace discuss the 'big data' issues facing carriers and operators today.
LRTV Huawei Video Resource Center
Data Center Energy – Build Your Data Center in a Modular Way

4|7|14   |   2:13   |   (0) comments


Dr. Fang Liangzhou, VP Network Energy Product Line, shared his thoughts about the challenges for data centers during CeBIT 2014.
LRTV Huawei Video Resource Center
Agile Network Solution – An Overview of Huawei's Agile Network Solution

4|7|14   |   2:31   |   (0) comments


Ajay Gupta, Director of Product Marketing, Networking Product Line, gives an overview of the Agile Network Solutions during CeBIT 2014.
LRTV Huawei Video Resource Center
Huawei’s eLTE Voice Trunking, Video and Data Applied for Railways

4|7|14   |   1:38   |   (0) comments


Gottfried Winter is the Sales Director at Funkwerk, a German specialist in GSM-r terminals and a long-time partner of Huawei. At CeBIT 2014, Winter talks to Light Reading about this partnership and the integration of enhanced voice trunking, video and data functions.
LRTV Huawei Video Resource Center
LeaseWeb Speaks Highly of Huawei's Datacenter Products

4|7|14   |   1:37   |   (0) comments


Rene Olde Olthof, Operations Director LeaseWeb, talks about the next data center transformation during CeBIT 2014.
LRTV Documentaries
Comcast: Reshaping the Cable Network Architecture

4|3|14   |   07:11   |   (8) comments


Shamim Akhtar, Comcast's architect and senior director of network strategy, explains why the cable company is moving to a more distributed network architecture.
Today's Cartoon
Hot Topics
WhatsApp Threatens Carrier VoLTE
Sarah Reedy, Senior Editor, 4/18/2014
The Hungry, Hungry Cloud
Dan Jones, Mobile Editor, 4/22/2014
Who's Ready to Play Broadband?
Carol Wilson, Editor-at-large, 4/21/2014
What's the Magic of Private Equity?
Carolyn Mathas, 4/22/2014
AT&T Turns Up Gig Heat in 21 New Metros
Dan Jones, Mobile Editor, 4/21/2014
Like Us on Facebook
Twitter Feed