China Telecom Said to Block Skype

China Telecom has started blocking access to a popular Internet telephone service that is threatening its long-distance revenue, according to local media reports and Internet postings.

China's largest fixed-line phone carrier recently began blocking access to service from Skype Technologies SA, a European-based Internet telecoms services provider, in the affluent southern city of Shenzhen near Hong Kong, according to the reports, including one in the Shanghai Daily.

They said China Telecom, whose broadband Internet service allows access to Skype, has plans to eventually block the service throughout its coverage area nationwide.

They also said the carrier has created a "black list" of people who use the service in Shenzhen, and threatened to fine anyone who tries to get around the new obstacles.

A China Telecom spokesman had no comment on the reports about the Shenzhen blockage, but gave a broader view.

"Under the current relevant laws and regulations of China, PC-to-phone services are strictly regulated and only China Telecom and (the nation's other fixed-line carrier) China Netcom are permitted to carry out some trials on a very limited basis," he said.

Skype service, which allows people to make calls from their PCs to regular phones, enables subscribers in China to dial to major Western markets in the United States and Europe for as little as 2 eurocents per minute (2.5 U.S. cents), compared with rates closer to $1 per minute from China Telecom.

China routinely blocks access to Web sites on politically sensitive subjects such as the banned Falun Gong spiritual movement and the 1989 crackdown at Tiananmen Square that left hundreds dead. But blockage of sites for purely economic reasons is much less common.

Tom Online, a Beijing-based provider of wireless value-added services that has a year-old relationship with Skype for Internet instant messaging services, said its product in China was still operational.


The Internet telephony blockage was a hot topic on several Web forums hosted by Skype.

"The whole thing looks to me like a plot to make back the money China Telecom thinks they lose because of Skype," complained one user in Shenzhen, who said his access was blocked but his wife, also in Shenzhen, was able to access the system.

Other users in Shanghai said they were still able to access the system.

Long distance business is an important revenue source for both China Telecom and China Netcom, accounting for about 20 percent of China Telecom's total revenue last year.

Internet-based services like Skype are putting pressure on both companies to lower their long-distance tariffs, which have been coming down at a rate of about 12-15 percent annually in recent years, said BOC International analyst Alan Ng.

"Eventually (Internet-based phone services) will be a threat," he said. "Whether it's already a serious threat, I doubt it. But it will get even more popular, and certainly that is why China Telecom is very concerned."

U.S. Web auction giant EBay Inc. is currently in talks to buy Skype, a source familiar with the situation told Reuters on Thursday, amid concerns that the European company could crimp highly-profitable eBay's growth.

China Telecom shares were down 0.88 percent at HK$2.80 in Hong Kong on Friday. They are unchanged since the beginning of the year, trailing a

6 percent gain for the broader Hang Seng Index.

Investors are fretting about China Telecom's slowing growth, as they wait for the outcome of a highly anticipated industry restructuring expected to include the eventual awarding of third-generation (3G) mobile licenses.

Copyright 2005 Reuters Limited.

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