Regulators shouldn’t be afraid to axe IT tie-ups

By Doug Young Source:Global Times Published: 2014-3-3 20:18:02

Illustration: Lu Ting/GT

Illustration: Lu Ting/GT

After years of fragmentation, China's Internet has undergone a sudden and radical overhaul over the past year, with three leading firms emerging as major consolidators. The frenzy of new tie-ups and acquisitions has been a welcome development, helping to cool overheated competition in a wide array of sectors where most companies were losing money.

But with the emergence of Alibaba, Tencent and Baidu as the three major consolidators, China's anti-monopoly regulator should start to give closer scrutiny to future deals to avoid too much reduction in the competition necessary to ensure future innovation and consumer choice. Such scrutiny could and should ultimately lead to the veto of some future deals, especially larger ones, by regulators who need to become more assertive in the space.

The sudden wave of consolidation began nearly a year ago when leading e-commerce firm Alibaba signed a landmark deal that saw it pay $586 million for 18 percent of Sina Weibo, often called the Twitter of China. Weibo is by far the most valuable asset of Sina, one of China's earliest Internet companies, and Alibaba also got the right to boost its stake to 30 percent in the future.

A stream of new deals has come nonstop since then. Within the last two weeks, reports have said that Tencent is close to buying a strategic stake in, China's second largest e-commerce company. Another significant deal late last month saw two other major e-commerce companies, Dangdang and Walmart-backed Yihaodian, confirm they would announce their own strategic tie-up in early March.

Most of the deals and other tie-ups so far have involved investments in the hundreds of millions of dollars, though a handful have topped the $1 billion mark. The largest deals have included Baidu's purchase of app store 91 Wireless for up to $1.9 billion, and Alibaba's pending offer to buy mobile mapping firm AutoNavi for a total of $1.6 billion.

All of the major purchases have been made by Alibaba, Tencent and Baidu, each of which has access to billions of dollars in funds for such deals. As their portfolios have grown, so have the market values of all three companies, making them some of the world's biggest Internet firms. Tencent and Alibaba are now both worth about $150 billion, while Baidu is worth $60 billion. By comparison, global e-commerce leader Amazon is worth just $160 billion, and even social networking leader Facebook is worth just $170 billion.

The rapid emergence of the three big players has already led to some complaints of market abuse. Baidu is frequently accused of operating a near-monopoly in online search, controlling around two-thirds of the market. Tencent has also been accused of wielding too much power in instant messaging, though last year a court cleared it in an anti-monopoly case and that ruling was upheld by a higher court last month.

History has shown that at least three sizable players, and preferably four or five, are needed to maintain healthy competition, with the US as a prime example. Names like Amazon, Google, Yahoo, Facebook and Twitter all have the scale to counter each other's clout, ensuring that no one gets too much power. And even with that level of competition, Google is still frequently accused of monopolizing the search space.

China's anti-monopoly regulators have very little experience with the Internet, mostly because until recently the market was so fragmented that true monopolies didn't exist. The regulator did make one major decision in the private media space back in 2009, when it declined to approve the merger of Sina and Focus Media, in a deal that would have created the nation's largest operator of private advertising platforms.

But the next year could well produce some newer deals with even larger monopolistic implications, some possibly valued in the billions of dollars. When those deals come, they should rightly draw a higher level of review by anti-monopoly regulators, who shouldn't be afraid to exercise their veto power if such mergers threaten to significantly reduce competition and consumer choice.

The author is a former company news reporter from Reuters. He writes about China's company news at

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