China’s MII has recently announced it will begin to block Skype connections on the mainland. This is a logical progression from the summer regulatory tightening which occured when the MII proclaimed only the six major carriers have the rights to offer VOIP services. The MII’s reaction, (prompted most likely by strong carrier lobbying in cohoots with the MII) was predictable. Understandably, the carriers seek to protect their price margins, and in China, like everywhere in the world, the best way to do this is to get the regulators involved to block ultra-cheap VOIP operations, thereby insuring lucrative carrier call margins. Of course, China’s carriers offer a variety of quasi VOIP services, mainly through street sold prepaid cards. State-controlled onsumer VOIP pricing is set at $0.28/min to the states, roughly 17 times more expensive than Skype.

It will be interesting to see how much of a hardline approach the MII takes in terms of VOIP crackdowns. Yes, it will be difficult to go after all the ’small potato’ operations which have been springing up and will continue to do so. However, I predict the MII will crackdown on large operations like Skype, crushing them out of their current operations, only to allow market “re-entry” via a carrier partnership. (of course, the carrier will dictate partnership terms)

Ebay/Skype, currently positioned with Tom.com, will need to pull some serious guanxi capital to realign their strategy, as currently, their operations are ripe for a China-wide ban. Furthermore, eBay has much more than just Skype at stake in China; it will need to tread ground carefully in the next few months.

postscript: I’ve called to several friends in Beijing via Skype. So far, no blocking. I suspect provincial blocking does exist, although it doesn’t seem be nationally enforced just yet.