Tencent-China Mobile: Virtual Network Buddies? 腾讯有望成虚拟运营商 与中移动合作
A rapidly evolving pilot program that should see at least 6 virtual network operators (VNOs) enter China’s telecoms space this year has everyone chattering about who the first operators might be, with Internet leader Tencent (HKEx: 700) mentioned as one of the most likely candidates. Tencent hasn’t really commented on its intent, though it’s certainly an intriguing possibility, especially against the backdrop of the company’s recent high-profile spat with leading mobile carrier China Mobile (HKEx: 941; NYSE: CHL). I’ll take a look more closely at this element shortly, but first let’s take a step back and check out the latest big-picture news involving the biggest opening in years for China’s sensitive telecoms sector.
China’s telecoms services space has been monopolized for the last 2 decades by a handful of massive state-run firms, with the trio of China Mobile, China Unicom (HKEx: 728; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) now controlling the market for nearly all mobile, fixed-line and broadband services. In a bid to breathe reinvigorate the sector, the Ministry of Information and Industry Technology (MIIT), the telecoms regulator, has been working on a broad-ranging plan for much of the last year to open up the space to more competitors, including foreigners. (previous post)
In the latest wrinkle of that plan, the MIIT is preparing a pilot program that would see each of the 3 major telcos required to lease out capacity on its network to at least 2 other companies. Those companies would then becoming VNOs by offering mobile or fixed-line services under their own brand names, meaning we soon could see new offerings coming under names like “Tencent Mobile” or “Lenovo Broadband.”
Media are reporting the MIIT’s pilot program is moving closer to official launch, with the regulator recently issuing a draft proposal for its plans. (English article) The reports say the MIIT will accept comment on the plan through February 6, and that the trial program will take place over 2 years, requiring each of the 3 major telcos to sign VNO agreements with at least 2 outside companies.
Now let’s take a look at Tencent, whose fast-rising WeChat mobile instant messaging service lies at the heart of its recent spat with China Mobile. WeChat, more commonly known by its Chinese name of Weixin, allows mobile subscribers to send instant messages for free over the mobile Internet, depriving China Mobile of the short text message revenue that is one of its biggest income sources. (previous post) That fact led China Mobile to accuse Tencent of acting like a network operator, forcing Tencent to work more closely with China Mobile to resolve the situation.
The most recent reports said that Tencent and China Mobile had entered talks that are most likely to result in an agreement that would allow the 2 sides to share revenues generated by WeChat. Many industry watchers may believe the current talks could evolve into bigger discussions that would see Tencent eventually tie up with China Mobile as a mobile virtual network operator.
Such a VNO tie-up looks like an extremely interesting proposition for both companies, as it would instantly give Tencent a new platform to develop its own exclusive products for mobile users. Such products could include premium versions of WeChat, or premium games and shopping services for users of its own Tencent-branded mobile service. From China Mobile’s perspective, such a tie-up would provide a valuable source of new revenue and a strong potential partner to help develop the company’s neglected 3G network, as well as its newer 4G network that is still in trial phases but could begin commercial service by the end of this year.
For all those reasons, a China Mobile-Tencent tie-up in the new VNO space looks like a smart move for both companies and could very well happen later this year. But while a tie-up with China Mobile looks like the strongest possibility, don’t completely rule out other potential tie-ups with Unicom or China Telecom, both of which would also undoubtedly like to bring in Tencent as one of their first VNO partners.
Bottom line: Tencent looks like a strong candidate to become one of China’s first virtual network operators later this year, with China Mobile as its most likely telco partner.
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This article was first published in the online edition of the South China Morning Post at www.scmp.com.
