Small telcos are likely to suffer in the wake of the somewhat amorphous message issued last month by the Chinese Government that it will crackdown on illegal IP telephony carriers.
(Mao on paper image by Kevin Dooley, CC2.0)
The move is part of what analysts see as economic protectionism in which the government will axe any Voice over IP (VoIP) carrier that is not properly registered and approved by the Ministry of Industry and Information Technology (MIIT).
It seemed that all but three state-owned telecommunications providers (China Telecom, China Unicom and China Mobile) would be shut-down, after an unnamed government official, quoted in the South China Morning Post, claimed that only the incumbents are authorised to provide VoIP services.
It put several media outlets into a flurry with reports that VoIP giant Skype would be booted out of the country. Yet the carrier was quick to quell the speculation; it said that local partner Tom Group is kosher and that its services will not be blocked.
"Currently, it is business as usual while service provision stays normal," a Tom Group spokesperson told Reuters.
The crackdown, estimated to take place over the next six to 12 months, is good news for China's state-owned fixed providers which have seen profits cannibalised by dirt-cheap VoIP services.
More than 70 per cent of the state telcos' revenue comes from voice services.
The regulatory change will help protect these revenues, according to Beijing-based senior analyst for Ovum, Jane Wang, although it may not be in line with the regulator's role of providing competitive services to the Chinese people.
"One of the roads for MIIT is to keep local telco revenue growth strong, and the other is to provide telecommunications services for the people," Wang said.
"Sometimes the two roads conflict."
She said the move is not largely focused on censorship or tightening control on communications, although a small base of wealthy companies would make it easier to enforce regulation compliance.
Wang said the move is bad news for the possible hundreds of small VoIP carriers which are now deemed to operate illegally.
Any provider offering VoIP services that allow users to call fixed and mobile lines from a computer will need to jump through tough licensing hoops, according to Wang.
By contrast, in Australia, anyone with the cash can establish a VoIP service. Local regulation for VoIP only gets sticky once a provider gains a sufficient user base to warrant attention from the Attorney-General's Department, which forces telcos to facilitate law enforcement wiretaps.
For now, MIIT has kept mum on how many providers may face the axe, but Wang warns against calling the government's bluff. The country is aiming to have a triple-play convergence — merging internet, phone and television — by 2013, which she said will provide plenty of hiding spots for rogue VoIP providers.