January 4, 2011

Skype Is Complying With Chinese Law

TOM Group said this week that the Web-based calling service Skype is complying with Chinese law, even as a crackdown on illegal Internet telephone providers could complicate Skype's operations in the country.

Skype operates in China through TOM-Skype, which is a joint venture that started in October 2004 with the TOM Online unit of TOM Group Ltd.

The comments from TOM Group, which is 51 percent owned by Hong Kong billionaire Li Ka-Shing, came as potential investors in Skype's planned $1 billion initial public offering this year fret over Internet telephone services in China could exclude the company from the world's largest Internet market.

"The operation of Skype in China is compliant with local laws and regulations," a TOM Group spokeswoman told Reuters on Tuesday. "Currently, it is business as usual while service provision stays normal."

The Ministry of Information and Industry Technology called for a crackdown "on illegal VoIP telephone services" and said that it was collecting evidence for legal cases against them.

While that could affect VoIP services like Skype, analysts said that it was far from clear what companies were being targeted or how strictly authorities would enforce any limits.

"Often these crackdowns are focused on the small domestic companies," Mark Natkin, managing director of Marbridge Consulting, told Reuters. "It doesn't mean that the sky is falling.

"I don't believe that Skype is being shut down, but one never knows."

According to Gartner analyst Sandy Shen, Skype and UUCall dominate the VoIP market in China.

The government move appeared to be aimed at protecting three government-controlled phone carriers, which have been losing money on their long-distance businesses.

VoIP calls allow users to make international calls for less than commercial providers, or free for both parties if they are using VoIP.

Businesses that use VoIP services in order to cut down their international telephone costs could lose access to the cheaper alternative.

"I think it would be hard for MIIT to really enforce things," Duncan Clark, chairman of BDA Consulting, a Beijing-based technology consultancy, told Reuters.

"They would be depriving tens of millions of people of their cheap phone calls. They are sensitive about monopoly gouging, especially with the price sensitivities now."

"It smacks of protectionism for Chinese telcos," added Clark. "That's something I think the government is sensitive to. Sometimes they put these trial balloons out there to see the reaction."

Shen said that the only way to enforce the ban would be for the government to block access to Skype by shutting down the website.  However, she sees that it is an unlikely move given that it would be politically unpopular among China's online community, at about 450 million people and growing.

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


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