Tencent’s answer to WhatsApp, WeChat is a run away success with 300 Mn User base. However, WeChat is posing a major problem for one Telco – China Mobile.
What is the Problem with China Mobile’s [CM] Network ?
CM has a weak 3G network based on TD-SCDMA, and 600mn of CM’s 700mn subscribers are still using its 2G/2.5G GSM/EDGE networks. As GSM network was mainly designed for voice and small capacity of data, it is not efficient to handle the heavy data traffic, especially the busy ping data packets from WeChat. One of the immediate actions the Chinese MIIT can undertake is to order Tencent to Optimize WeChat signaling protocol, so as to reduce its pressure on telcos’ mobile networks.
As WeChat users are growing more rapidly than CM’s migration from 2G to 3G, CM will face increasing network and cost pressure to upgrade its 2G networks to meet the demands of its customers using WeChat. The challenge for CM is that the revenue generated from WeChat data traffic may not be enough to compensate the investments on signaling channels. In contrast, China Unicom [CU] / China Telecom [CT] more mature 3G networks are more efficient to handle the signaling of WeChat, and also can generate higher revenue due to its higher data speed that can even transfer WeChat multi-media messages easily.
Tencent Paying China Telecom / Unicom for Hosting
Tencent is hosting most of its WeChat servers in Internet Data Centers of CU and CT to access the Internet backbone, and is paying telcos high bandwidth leasing fee. CM is not happy not only because most of these leasing fees are mostly paid to CU/CT, but also it has to pay CU/CT high Internet interconnection fee for its users to access these WeChat servers on CU/CT’s networks.
Currently, charging an OTT Service is ruled out. This certainly makes a Strong Case for Telcos to Build their own network optimized and localized messaging App.