It's always awe-inspiring to watch a colossal dinosaur struggling against the inevitable consequences of evolution intelligent design. That's why I was interested to read reports from both Reuters and AFX that China Telecom is banning popular VoIP service Skype in Shenzhen, with an eye towards extending the ban nationwide. (More from China Herald.)

Imagethief is, of course, a highly evolved organism with a tremendous, Mekon-like cranium crammed full of a mixture of deep thoughts and recollections of Warner Bros. cartoons and pop-culture trivia. He also has family and friends in the United States. So it will come as no surprise to hear that he is a big fan of Skype. Similarly, it will be no great intuitive leap to conclude that he is not a great fan of China Telecom. And not just for this. Imagethief has received several colossal phone bills from China Telecom for the privilege of calling people by POTS* (Skype isn't always an option).

Let me put this in context for you. It costs about a buck a minute to call the US by POTS from China. I've had phone bills up to about 450 yuan, or about $60, in months where I've made just one or two calls to the US. Now remember, I live in a country with a median urban income of just over $1000 per year, or about $90 per month. Other than rent for expensive, international apartments, boutiques and fashionable restaurants and bars aimed at foreigners, the cost of living here is pretty low (which is why underpaid Imagethief can save any dough). International phone calls, however, remain ludicrously expensive by local standards.

So let me venture an opinion. If one hour's worth of phone calls to the US, Europe or anywhere else outside of China costs 60% of the median monthly income, China Telecom deserves to fail. This is clearly not a company sweating under the ruthless threat of competition and thinking hard about how to deliver more value customers. Even the old Ma Bell at her most rapaciously monopolistic didn't consume such a slice of her customers' income.

Looking beyond the inconsequential miseries of overpaid foreigners for a moment, it's true that most Chinese people may have little need to call overseas. But I think we should extend them the benefit of the doubt. There is, after all, a colossal Chinese diaspora, a growing Chinese middle class and an increasing number of Chinese working and studying overseas. Let's not bleed the poor bastards dry.

But raising the issue of failure supposes that China Telecom is actually in a competitive environment, and not a state-owned company operating in a managed competitive environment. It is listed in New York and Hong Kong, but only 17% of the shares are traded, which suggests that the interests of public shareholders are not, perhaps, foremost among the company's concerns. On the other hand, it has returned almost a 20% gain to shareholders over the past year, so why complain? As long as you lickspittle capitalists don't mind that your tainted returns are being squeezed from the threadbare pockets of the Chinese workers.

I suppose it makes sense though. The landline market is still growing here, and I note that China Telecom's interim results for the six months to end last June showed a net addition of 15.75 million landlines, or about 7.5%. Doubt that's happening in the US these days.

Now the whole thing with Skype is a little unclear. From the articles it sounds like China Telecom will block access to Skype by users of its broadband service. I am not sure if they will block the whole service, just the "Skype Out" service, which provides calls to normal phones, or what. China Telecom has about 17.3 million broadband subscribers nationwide, or about a third of the total broadband subscribership reported by CNNIC in July, 2005 (their latest statistical survey). But I am not sure if China Telecom wholesale bandwidth to smaller providers (such as Imagethief's), in which case the footprint of the policy could be much larger.

And makes me wonder why China hasn't taken a more aggressive approach to VoIP at a national level. One of my friends here, a longtime, well-connected resident, has told me to always assume that PSB is listening, especially when using the phone. Now, I am not paranoid by nature, but I do work with local journalists in the course of my job, so just a little paranoia is probably justified. Skype calls are encrypted, until they communicate with a POTS system in the case of a Skype Out call. That means that a Skype call from a computer in China to a phone in another country will be encrypted until it is beyond the range of the Chinese telephone network. And a computer-to-computer call will be encrypted end-to-end. That seems like the kind power that the Chinese government might not want its citizens to have. Of course, Skype doesn't discuss the details of its encryption, so who knows how robust it is? It might be completely crackable. China sure isn't short of cryptographers and computer scientists.

Now, I am not a fan of conspiracy theories generally, and I find it completely reasonable to believe that China Telecom is squashing Skype solely in order to protect it's manifestly lucrative long distance calls. And I assume it would be quite easy for the Chinese government to simply ban Skype at the Great Firewall level if they felt VoIP was a threat. The US government is already investigating the methodology of VoIP wiretapping and it has decreed that US VoIP operators must make their services tappable, and I am sure there are similar efforts here. Because of that, simply banning VoIP at a Chinese national level is probably overkill. (One of the techniques in development in the US, which doesn't allow listening into calls but does allow tracking who is speaking to whom, already works on Skype. For those who are more into conspiracy theories than I am, two of the three authors of that paper are the conspicuously Chinese sounding Xinyuan Wang and Shiping Chen, but, since they are at George Washington University in the US, I wouldn't get too wound up.)

But I'll be curious to see if the Skype ban spreads to the rest of the China and to the other carriers. With VoIP tapping a reality, and in the wake of the exposure of Yahoo's delivery of journalist Shi Tao's e-mail (proxy link) to the Chinese authorities, it might also behoove Chinese VoIP users to consider which VoIP provider they use and where the servers are located. Skype's local partner is Hong Kong  based Tom.com, a creation of Beijing-friendly Li Ka Shing. I don't think they'd hesitate to pony up the goods if PSB comes calling.

Meanwhile, at a purely commercial and technical level, I think China Telecom's efforts are doomed to fail. VoIP is here for good, and it's destroying the long distance business model for POTS all over the world. Not only are there other VoIP providers waiting in the wings if Skype is blocked (China Telecom, perhaps?), there are many ways to circumvent Internet controls, as many of us know. And there is real incentive to use VoIP for long distance here. Your average Chinese Internet user might not care so much about dissenting, but in my experience he's bang up for saving money.

Thanks to Overread and Joe for the two news articles cited at the top.

Update: According to Mure Dickie's article in the Financial Times, the Skype Out service is not officially offered to users in China. Although, as a user of Skype Out in China, I can tell you that it can be acquired and used. Also, only the telcos are officially licensed to offer VoIP services that involve connection to regular telephones in China, mostly provided by pre-paid cards. Skype is just one target, not the only target.

Bonus pop-culture quiz: What British science fiction comic strip featured the large-craniumed Mekon as arch enemy of the eponymous hero? No Google! (Or Skype.)

*POTS: plain old telephone service.