Tencent Says Joint Venture With China Unicom Important to Set Up

On November 16, at its third quarter performance meeting, a senior executive of Chinese Internet giant Tencent responded to questions related to the establishment of a joint venture with China Unicom, a Chinese state-owned telecommunications operator.

One executive said, “We have indeed established a joint venture with China Unicom. Such cooperation is very important. Both sides can explore content distribution networks (CDN) and edge computing capabilities, and can do more development and serve more customers.”

“At present, the business plans are still being worked out by the two companies. The short-term benefits will be limited, but the establishment of the joint venture is a milestone, making the resources and technologies of both companies better applied. At the same time, no matter which company we cooperate with, we are more concerned about what advantages the joint venture company can bring,” added the executive.

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According to an official document released on October 27 by the Anti-Monopoly Bureau under China’s State Administration for Market Regulation (SAMR), Tencent and China Unicom have received unconditional approval to establish a joint venture following the completion of a review on October 18.

The newly established joint venture will be mainly engaged in the CDN field and edge computing. It will be jointly controlled by subsidiaries of each firm, namely Shenzhen Tencent Industry Venture Capital and Unicom Innovation Venture Capital. After the transaction is completed, China Unicom, Tencent and an employee stock ownership platform will each hold 48%, 42% and 10% of shares, respectively.

CDN is a widely used as a content transmission system, which is used to transmit files including multimedia information to device users faster and more reliably by means of its featureset, including caching algorithms, load balancing and application acceleration. On the other hand, edge computing is different from the traditional centralized data center system and undertakes the required computing work in the decentralized edge data center closer to the device user, thus shortening the physical distance between the data center and the user thus giving faster transmission speeds.

Liao Xuhua, a senior analyst at Chinese research firm Analysys, said in a media interview that most of the bandwidth costs often mentioned by video websites, livestreaming platforms and short video platforms are actually CDN costs. Although CDN is a relatively mature technology with less optimization space and a relatively low profit margin, it is one of the products with the highest income for cloud computing vendors at present. With China Unicom’s network facilities and Tencent‘s algorithm ability, CDN may be further optimized, thus reducing user bandwidth costs.

The latest financial report shows that its total revenues on a non-IFRS basis were 140.1 billion yuan ($19.7 billion), a decrease of 2% over the third quarter of 2021. The profit attributable to equity holders of the company for the quarter was 32.3 billion yuan, an increase of 2% year-on-year.