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China Mobile's WeChat Dilemma
Summary:China Mobile is facing a dilemma over whether to charge users of WeChat. Either way, it will lose and if it charges, many others will lose too. So it should respect the free market and cooperate with other companies if it wants to keep its feet in the app industry.

By Yang Yang (杨阳)
Issue 613, Apr 2, 2013
Opinion, page 15
Translated by Li Jing
Original article: [Chinese]

China Mobile is facing a dilemma over whether to charge users of WeChat (微信) – a mobile text and voice messaging service run by Tencent.

If China Mobile decides to charge for this and similar services, it will drive a number of small companies that are competing with WeChat to bankruptcy - effectively helping taking out WeChat's competition for them.  

Alternatively, if it decides not to charge, WeChat will continue to grow rapidly and be a dominant force in China's mobile market. Indeed it will grow so large that it will begin to take market share from China Mobile in all their value-added business lines, so no matter if it's content, advertising, online games or video, WeChat will be able to dominate - in fact, that's exactly what it's doing right now.

WeChat is a kind of "OTT" (Over the Top) service, referring to when internet companies develop certain data services without telecom operators' permission. Application services offered by Google, Apple, Skype and Netflix in mobile stores fall into this category, as do QQ, WeChat and NV (network video) in China.

Now many OTT service providers directly serve their users and collect fees, leaving operators like China Mobile who serve as the "information pipeline" without any economic benefit.

iFreeTalk (畅聊) for example, has features like SMS and free calling. It attracted nearly one million young users soon after it got financing and entered the market. But it hasn't turned a profit.

Small OTT companies like iFreeTalk abound. Not only do they need to pay salaries for online staff and promotion, but they also have to compete with giant companies that have enormous user bases and deep pockets.

So if China Mobile starts charging for OTT services, small companies like iFreeTalk will disappear. If that happens, China Mobile will only strengthen Tencent's position in the market at the expense of greater competition.

Another issue is how to charge. One way is to make customers pay a monthly fee to use WeChat, which is currently free, and then divide the profits between Tencent and China Mobile. But is it reasonable for China Mobile to share profits for Tencent's own app just because it provides the "information pipeline?" That would be like a restaurant achieving great success, then a utility provider like the water company demanding a fixed percentage of the profits.

It seems rather ridiculous, but China Mobile as the utility operator is considering it. The more reasonable alternative seems to be China Mobile using its "pipeline" to charge for WeChat by making users pay for the extra internet traffic in their phone package fees. But China Mobile is afraid to do this because raising its phone package prices will be unpopular and may cost the company customers.

Actually, China Mobile has pushed some of its own OTT services like Fetion (飞信) through package promotions, free texting and MMS (multimedia message), which gives it some advantages over other OTT services.

However, this is an era of free market competition where the preferences of users rule.

Fetion hasn't been popular, which tells us all we need to know: it's not the future of China Mobile.

Without its own OTT service, the only way that China Mobile can become part of the action is to cooperate with other companies and support them.

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