Monday, September 12, 2005

Online Phone Services Spur Backlash in China

State Telecom Giant Blocks
Users From PC Calling
Offered by Skype, Others

September 12, 2005

Skype Technologies SA and other Internet-telephony companies could face difficulties in one of their most promising markets, as a Chinese state-owned phone company appears to be moving to bar Chinese users from some of the companies' services.

Skype offers two basic kinds of services: one that enables users to make voice calls from one personal computer to another over the Internet, and a premium service that allows people to call regular phone numbers using their PCs.

It is the second type that appears to be triggering a backlash from China Telecom Corp., the country's dominant fixed-line phone company. Skype doesn't offer the PC-to-phone service, called SkypeOut, directly in China, but some users in China have found ways to use it anyway.

An operator in the technical-support office of China Telecom's subsidiary in the southern city of Shenzhen said yesterday that her company has begun blocking customers from using the PC-to-phone service provided by Skype and others. The woman, whose statement was consistent with Chinese media reports in recent days, declined to be named. It wasn't clear whether similar measures have been taken in other Chinese cities.

Internet phone service is threatening established phone companies around the world. China Telecom may be especially sensitive to such competition because it is already dealing with slowing growth in its main fixed-line phone business, said Duncan Clark, managing director of BDA China, an Internet and telecommunications consultancy in Beijing. China Telecom is "in a very defensive position," he said.

Spokesmen for China Telecom couldn't be reached for comment. Hannah McCree, a spokeswoman for Luxembourg-based Skype, said the report of a China Telecom crackdown on Skype "sounds like a rumor and we don't comment on rumors."

Skype says it has 3.1 million registered users in China, making the country one of its top three markets. It began cooperating last November with Chinese Internet concern Tom Online Inc. to provide a Chinese version of Skype's software. Earlier this month, the two companies announced they were expanding their relationship into a joint venture. The existing relationship doesn't include SkypeOut, though the joint venture, according to a Sept. 5 news release, is expected to develop unspecified "premium services" in China.

Chinese government regulations classify Internet telephony as "basic telecommunications" businesses, which its rules dictate can be offered only by China's six major telecom carriers. The operator in China Telecom's Shenzhen office said the company's policy was implemented because Internet phone service has "disturbed the telecom market order." She said customers who violate the policy have their service cut off and can't have it restored unless they sign a pledge not to use it again."

A Tom Online official said his company wasn't aware of any disruption to the PC-to-PC service it offers with Skype in China. The official said Tom Online has been in discussions with Chinese telecom operators about providing Skype but that no deals have been reached.

On its Web site,, it says SkypeOut isn't allowed in mainland China. But it also notes that anyone with an international credit card can buy points from Skype's Web site. Chinese media have reported that many Chinese have downloaded the SkypeOut software from overseas Web sites.


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