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November 16, 2005

Skype in talks with Chinese authorities

VoIP pioneer Skype Technologies SA, which was acquired by online auctioneer eBay Inc for $2.6bn in September, is in negotiations with government-owned phone companies in China in an effort to overcome regulatory blocks against its SkypeOut computer-to-phone calling service.

By CBR Staff Writer

According to the Financial Times, Skype CEO Niklas Zennstrom is optimistic the talks will clear the way for the launch of the SkypeOut service in China.

Skype already has a presence in China thanks to its free computer-to-computer VoIP calling service offered through a venture with Tom Online, and it is thought that Skype already has a couple of million users in that country. However, the Luxembourg-based company is facing regulatory hurdles over its SkypeOut service, and is experiencing some problems with its free VoIP service.

The Chinese government deems peer-to-peer internet telephony services to be illegal, and also actively blocks web sites that it deems subversive. China’s largest landline phone carrier, China Telecom Corp, has already blocked Skype in Shenzhen, and has told customers there that the SkypeOut service is illegal. There are also reports that a US-based company, Verso Technologies Inc, is about to sell, or has already sold, an anti-Skype filtering systems to a leading Chinese operator.

Skype is keen to resolve these issues with the Chinese authorities. China is one of the world’s largest markets, and Skype is keen to expand its fledging customer base there.

Skype was founded in 2003 by Swede Niklas Zennstrom and Dane Janus Friis, and the two employed the same Estonian programmers who created the calling software to build Kazaa, the Napster-like software that shook the entertainment industry by letting people share music and video files.

In 2004 Skype had revenue of only $7m, but this year it is expected to bring in $60m, and more than $200m in 2006. It currently offers free calls to everyone on the Skype network, and only charges for calls from computers to mobile phones or traditional fixed lines.

The company is headquartered in Luxembourg, but is run out of its London, UK office. It boasts an impressive 150 million-plus downloads of the software, with 65 million registered users. This is growing at roughly 170,000 to 190,000 a day.

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