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Skype Copes with Chinese Phone Operators
[November 21, 2005]

Skype Copes with Chinese Phone Operators

(Comtex Business)BEIJING, Nov 21, 2005 (SinoCast China IT Watch via COMTEX) --Skype, the famous VoIP (Voice over Internet Protocol) tool provider, is negotiating with China Telecom and China Netcom, the two main fixed-line phone companies in the country, about jointly launch SkypeOut (computer to telephone) voice services in China, according to Niklas Zennstrom, Skype Chief Executive Officer.

The company successfully entered China market after inking a joint venture agreement with web portal and wireless service provider TOM Online in September, and even before then the two were already partners in developing a simplified Chinese version of Skype's VoIP software. Now the software has attracted nearly 4 million registered Chinese users.

Chinese government officials have been generally tolerant of VoIP software, such as Skype, that is used to make calls from one PC to another. But the ability of Skype users to make calls to a phone via the SkypeOut service is more sensitive, because this directly affects the revenue that operators such as China Telecom earn from international phone calls.

On the one hand, the Chinese government owns the carriers and will act to defend their interests, said a market analyst. However, the Chinese government also wants to see the price of making phone calls come down, he said, and it is a question of bureaucratic politics.

In China, Skype has made an effort to show its sensitivity to the concerns of operators. The Chinese-language version of the Skype software only permits calls from one PC to another; SkypeOut calls are not permitted. However, Chinese users can access SkypeOut by downloading the software directly from the Skype Web site.

So it was not a surprise to hear Chinese telecom carriers set barriers for Skype in recent months.

Verso Technologies Inc., of Atlanta, Georgia, said weeks ago that it was about to win a contract to block Chinese Internet users from using Skype VoIP software.

The company also revealed that a Chinese telecommunications operator had begun a paid trial of Verso's NetSpective M-Class filter, a product that is designed to block VoIP calls made using Skype, as well as other peer-to-peer applications. If the paid trial now underway in one Chinese city goes well, the operator will purchase the NetSpective M-Class application filter before the end of the year, it said. Financial terms of the deal were not disclosed.

While Verso said in its release that the use of Skype is illegal in China, the situation is more nuanced.

Verso did not provide additional details of the trial to block Skype or name the Chinese operator behind the project, but every one can guess that must be China Telecom.

In September, China Telecom was reported to begin blocking SkypeOut calls made from Shenzhen, a southern Chinese city lies along the border with Hong Kong.

"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% 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% to 15% annually in recent years, said a BOC International analyst.

"Eventually (Internet-based phone services) will be a threat," the BOC analyst 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."

China Telecom shares keep slipping at HKD2.80 in Hong Kong, and they are unchanged since the beginning of this year.

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.

Now, however, it seems the interactivities among Skype and China phone operators will turn to come compromise deals that complete the one last step of the integration between Internet and telecom networks in China.

The Skype CEO declined to tell a detailed schedule on formally promoting SkypeOut service in the country, but personnel from its partner TOM Online disclosed that the deal might be done as early as this yearend.

From, Page 1, Friday, November 18, 2005
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