Watch CBSN Live

China Co. Seeks To Stop Internet Phone

A U.S. maker of network management systems said Wednesday it had received an order from Shanghai Telecom Co. for a system that can detect and block telephone calls placed over the Internet.

Shanghai Telecom, which has 6.2 million landlines, plans to use Mountain View, Calif.-based Narus Inc.'s system to improve its ability to block "unauthorized" Internet calls that connect to its phone system, bypassing its toll structure.

"Voice Over Internet is a very disruptive technology that's causing phone companies around the world to rethink their pricing structures and the way they do business," says Technology Analyst Larry Magid. "Current American law encourages this competition but there are a number of countries whose politicians will use whatever means are necessary to protect their state own telephone companies."

"Before anyone gets too sanctimonious about the Chinese efforts to block Internet phone calls, it's important to remember that for most of the 20th Century, our own telephone system was a government-regulated monopoly with sanctions against anyone who dared to compete," Magid adds.

In the United States, the Federal Communications Commission fined a small telephone company that prevented its Internet subscribers from accessing competing VoIP service, but some countries with state-owned telecommunications companies are taking a different tack.

In China, the government has sided with carriers and allowed them to block VoIP services that compete with the carrier's own products. A recent report in the Financial Times quoted an executive with a Hong Kong company as saying that the government would not issue new licenses for computer-to-phone calling services until 2008.

The Chinese government and major phone companies have refused to confirm that account.

Steve Bannerman, a spokesman for Narus, said carriers in several countries, including Egypt, are using its software to block gateways that connect VoIP calls to the phone network.

VoIP-blocking software from another U.S. company, Verso Technologies Inc., is being tried out by an unidentified Chinese carrier.

Narus' and Verso's software can be configured to block the use of Skype, eBay Inc.'s popular VoIP application. However, Shanghai Telecom has not bought the module from Narus that blocks Skype calls, Bannerman said. The Chinese version of Skype does not connect to the phone network, unlike the international version.

View CBS News In