WebProNews

The premium SkypeOut service lets users call any phone number in the world, but China Telecom has blocked it.

Skype isn't offering its top service, SkypeOut, in China. Despite that stance, a part of Skype's deal with China's Tom Online, the Shenzhen Telecom arm of China Telecom has blocked the service so users outside China can't reach numbers inside the country when using SkypeOut, according to FT.com.

The low-cost offering poses a tremendous competitive threat to China Telecom, which like other conventional phone companies charges premium rates for international calling. Skype and other PC to PC calling services have been tolerated by the Chinese government.

The prospect of having local businesses gutted by lower cost competitive replacements has led the China Telecom unit to ensure SkypeOut won't cross its network anyway. Shenzhen Telecom customer service has been telling users who complain that SkypeOut and similar services are illegal under Chinese law.

A 2004 regulation banning services that would "destroy market order" has been cited as the legal basis for the restriction. Shenzhen Telecom only serves China's southern Guangdong province. Skype's partner Tom Online has not heard complaints from other parts of China; as noted, it did not plan to offer SkypeOut or other VoIP services that might contravene the government ban.

Presently, only state-run telephone to telephone VoIP services can be offered in China, and only with prepaid calling cards. Other providers like Skype have not been permitted to enter the market.

David Utter is a staff writer for WebProNews covering technology and business. Email him here.