Skype Could Be Designated Illegal in China

Reuters

China will crack down on what it called illegal Internet telephone providers, according to a circular from the Chinese government, a policy that could hurt the popular service Skype.

The statement, from the powerful Ministry of Information and Industry Technology, did not mention any phone companies by name.

Continue Reading Below

It called for a crackdown "on illegal VoIP (voice over Internet protocol) telephone services" and said it was collecting evidence for legal cases against them.

The timing of a ban from one of the world's fastest growing markets could dampen investor enthusiasm for Skype. The Luxembourg-based company is preparing a 2011 initial public offering that is expected to value it at about $1 billion.

The latest news is another setback after Skype's global service outage last week, casting doubts on the reliability of the service.

Skype is still available in China through its joint venture partner TOM Online and, as of Thursday, Skype had not been contacted by Chinese government officials, a Skype spokesman said.

In 2005, Skype was blocked in parts of China as the government sought to ban phone calls made over the Internet.

Skype, partly owned by web retailer eBay Inc, has been growing in popularity among Chinese users and businesses to make cheap or free international phone calls over the Internet.

"Nearly 1 in 6 people in the world live in China, and a great many of them rely on Skype to connect with families and friends, run businesses, and call people around the world," wrote Skype's Josh Silverman in an October blog post about Chinese privacy.

Skype has about 124 million users worldwide.

The Chinese circular, dated December 10, did not say what amounted to illegal services and did not name any VoIP providers it considered to be breaking the law.

Spokespeople for the ministry and the ministry's office gathering information for the campaign did not answer telephone calls on Friday.

The move appeared to be aimed at protecting three government-controlled Chinese phone carriers -- China Telecom, China Unicom and China Mobile -- which provide the bulk of China's telephone services.

The Hong Kong-based South China Morning Post quoted an unidentified ministry official on Thursday as saying VoIP services could only be provided by the big three Chinese operators.

Spokespeople for China Telecom and China Unicom did not answer phone calls on Friday. A spokeswoman for China Mobile, reached in Beijing, referred calls to the firm's Hong Kong office. Attempts to reach the Hong Kong office were not successful.

VoIP calls allow users to make international calls for much less than commercial providers, or even for free if both parties are using VoIP. Many businesses that use VoIP services to cut down on their international telephone costs could lose access to the cheaper alternative.