Tencent, 360.cn Face Chinese Ministry Probe of Software Dispute

China’s government will investigate the practices of Tencent Holdings Ltd. and 360.cn after a dispute between the two Internet companies caused disruptions to users and what a ministry called a “bad social impact.”

The operators must “stop attacks on each other” and ensure their services are mutually compatible, the Ministry of Industry and Information Technology said in a Nov. 20 statement. The regulator will investigate the behavior of Tencent and 360.cn, it said.

Tencent, China’s biggest Internet company, asked users this month to uninstall software made by 360.cn, saying the products undermine information security. A product made by 360.cn will disrupt the malware-detection features of Tencent’s QQ instant-messaging service, Tencent said Nov. 3.

360.cn said its software is designed to stop QQ from scanning data on users’ computers. Tencent says QQ has more than 600 million users, while 360.cn, a provider of free security software, says it has a subscriber base of 300 million.

Tencent and 360.cn must apologize publicly for the dispute, the ministry said. Tencent apologized in an e-mailed statement, saying it “hadn’t fully taken into account the feelings of users.” 360.cn is “sorry” about disruption suffered by users, it said in a statement on its website.

Market Share

Tencent rose 1 percent to HK$178 as of 10:55 a.m. in Hong Kong trading, compared with a 0.6 percent decline in the city’s benchmark Hang Seng Index. 360.cn, based in Beijing, is closely held.

Traffic on the QQ service returned to “normal” levels, Tencent President Martin Lau said Nov. 10. As many as 3 percent of QQ subscribers may be affected by Tencent’s decision to ask users to uninstall 360.cn’s software, according to estimates by Muzhi Li, an analyst at Mizuho Securities Asia Ltd.

QQ controlled 77 percent of China’s instant-messaging market as of December 2009, according to Analysys International. Microsoft Corp.’s MSN service had 4.2 percent market share, the Beijing-based researcher said.

360.cn is the biggest provider of free security software in China, according to the company’s website.

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