This week, subscribers to China Telecom's broadband access service in Shenzhen, Guangdong Province, found that they could not log on Skype any more. When they complained to China Telecom, the carrier said that Skype was not allowed.
An executive from the technical department of China Telecom disclosed that, from now on, customers of China Telecom that use Skype to make long-distance calls will be fined and even cut off from their connection to the Internet.

The executive added that the contracts signed by the broadband users of China Telecom when they initially subscribed to the service indicated that any kind of Internet telephones are prohibited.

In response to the issue, an executive from Guangzhou Telecom said that it is illegal to use network telephones in China for the moment and that inspection and management rights of Internet telephones belong to China's Communications Management Bureau.

As the biggest fixed line telephone carrier in China, China Telecom is holding talks with a number of software and hardware makers about the issue. At the beginning, China Telecom will carry out its close-down actions in some big cities such as Beijing, Guangzhou, Shenzhen, and Shanghai and expand it nationwide by 2006.

Due to technical limitation, China Telecom is unable to detect all voice communication software in use, so the next step will be to set up a traffic-inspection system that makes inspection easier.

For its much cheaper costs and PC-to-PC and PC-to-phone functions, network telephones have had a great impact on conventional, fixed-line phone carriers. So far, only 263.com has got the green light from the Ministry of Information to run a network telephone business, but its voice communications software can only support PC-to-PC calls.

Insiders from Tom Online, one of the leading Internet portals in China, say that the Skype software provided by Tom Online does not support PC-to-Phone function just yet. However, large numbers of Skype users say they download software at Skype's own Web site.

Some industry analysts point out that once the Chinese telecom regulators give the green light to network voice communications software, there will be a fight between telecom carriers and network telephone vendors.

China Telecom and China Netcom have been used to dominating the long-distance call businesses. However, they have been losing ground. Last year, China Telecom's domestic long distance call sector was down 1.2 percent. Market watchers attribute the recession largely to the rise of Internet telephony.