Mainland puts VoIP on hold

Voice over internet protocol (VoIP) was unlikely to take off in China soon, as the government was keen to protect fixed-line revenue for telecommunications companies, analysts said.

However, mainland internet service providers are talking with fixed-line carriers about offering personal computer-to-fixed line telephony services and VoIP technology is gradually making inroads - even if regulations fail to keep pace.

Earlier this month, Beijing News quoted an unnamed government source as saying that initial regulations on VoIP would be released soon, and that the Ministry of Information Industry would classify the new technology as a value-added service rather than a basic service.

Value-added services are open to foreign investment and are subject to less rigorous licensing procedures than basic services such as fixed-line and wireless telephony.

China Telecom, China Mobile and China Unicom are already offering domestic and international long-distance VoIP telecommunications services, usually in a prepaid form. These are regulated as basic services and operate under long-distance licences.

The internet component of these services is hidden from the consumer, who accesses them through a standard telephone handset and not a PC. If PC telephony services for intra-provincial calls were legitimised they would vie for a key revenue source of fixed-line carriers.

This week, mainland mobile internet service provider Tom Online launched its PC-to-PC VoIP service in partnership with European VoIP provider Skype Technologies.

A Tom Online spokeswoman said it was in preliminary talks with carriers about offering VoIP to telephones some time next year.

Such operating models allow ISPs to circumvent a regulatory grey area, as telecommunications companies already have a licence to offer long-distance VoIP service.

According to the ministry's website, 83.84 billion minutes of VoIP long-distance calls were made last month, a year-on-year increase of 46.2 per cent. Of the total, 98 per cent of the traffic was domestic long-distance calling.

Long-distance calls made over VoIP can be as much as 70 per cent cheaper than calls on circuit-switched networks.

Vincent Fu, Gartner's principle analyst for Asia-Pacific telecommunications, said long-distance calls made over VoIP would grow to 80-90 per cent of the long-distance traffic by 2008, eroding the share of traditional circuit-switched networks to 10 per cent.

'The traditional margin for long-distance business may totally disappear for these fixed-line carriers,' Mr Fu said.

When presenting interim company results this year, China Telecom president Chang Xiaobing admitted that VoIP had dragged down international IDD revenue.

Analysts were generally sceptical over the Beijing News report that the ministry would soon release new regulations for VoIP.

Edison Lee, a telecommunications analyst at CSFB, noted that China Telecom and China Netcom were still more than 70 per cent state-owned. He doubted Beijing was eager to welcome VoIP providers into the market, as they would cannibalise the two fixed-line giants' revenue.

'I think the interconnection issue for VoIP is not even on the [government's] current agenda,' Mr Lee said.