The western media has recently been aflutter with news that Skype in China may be banned, after China’s ministry in charge of technology infrastructure, MIIT, stated that it would go after “illegal” VoIP services in China.
While many jumped to the conclusion that this would mean an effective ban on Skype in China, like so many other things, it’s more likely that there are other reasons behind the announcement.
In fact, the MIIT directive was laying the groundwork for saying that it might go after VoIP operators, not that it would specifically ban any specific company, let alone Skype in China, which is a joint-venture with TOM Online, which is in turn owned by Li Ka-shing, the Hong Kong billionaire who owns a good chunk of Hong Kong’s GDP.
TOM Online has made it a point to address China’s security concerns, including giving the security services the capability to monitor chat and calls with built-in backdoors. These backdoors are only available in the version which is downloaded from China; they are not present in the international versions.
So if government security and social harmony are not the problem with Skype’s VoIP service, what are they?
In fact the reasons may well have to do more with business than security. The move from MIIT is more likely to do with China Mobile’s share price, which has performed poorly compared to its other state-owned siblings, China Unicom and China Telecom. For a long time, China Mobile was, by far, the leading mobile operator in China and the world. While China Mobile, China Unicom and China Telecom are all listed in New York and Hong Kong, their CEOs are appointed by China’s cabinet, the State Council, and are rotated from one company to another.
Because of its rapid growth, China Mobile was “rewarded” with China’s home-grown 3G standard, developed with Siemens, TD-SCDMA. Its competitors, China Unicom and China Telecom adopted competing standards which were developed in the US and Europe. In addition, China Unicom got the China distributorship for the iPhone, which has proven wildly popular among Chinese urban consumers. The end result? China Mobile, while growing, does not have a dominant lead in the 3G growth space, and is having to fight for growth like it never did before. On January 2, Zacks Investment Research downgraded China Mobile from “neutral” to “underperform”
At the same time, VoIP services like Skype’s cut into their most lucrative revenue source, international direct dial (IDD) access fees. All of the major operators count on IDD revenue to cross-subsidise the major infrastructure investment and marketing expenses they need to make the move to mobile, video conferencing and other modern services which Chinese consumers want. But if Chinese consumers opt to use VoIP instead, before China Mobile has completed its TD-SCDMA rollout and the service is completely installed, what will it do? The company would be staring down into a deep earnings abyss. As the biggest of the three, China Mobile has the most to lose of the three operators. In comparison, China Unicom has benefited from the growth and popularity of the iPhone, and also will benefit from the cheaper Android phones which are coming to market in 2011.
For this reason, it is likely that China Mobile lobbied MIIT to at least make a shot across the bow to all VoIP service providers in China, serving notice that the government was not happy with bleeding revenue and earnings for the telcos. If the rules are no longer in China Mobile’s favour, how about changing the rules?
To many outside observers, what looks like yet another instance of China clamping down on another successful western service provider, may in fact be more about protecting revenue for China Mobile. If the government does in fact move forcefully against VoIP service providers, it’s likely to be an indication that China Mobile’s revenue and earnings are really hurting.
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