The Asianist

From Angry Chinese Blogger:

In a shock move, Shenzhen Telecom, the Guangdong division of China Telecom, has announced that it has banned users of its network from using the Voice over IP telephony services provided by the European company Skype, and that it has put in place technology that prevents people from communicating with Skype. Forcing many off the free of Voice over IP service, and onto pre paid state sponsored long distance call schemes.

The banning of Skype services by the state controlled telecom group came with no warning and is feared may herald a wider blocking of VoIP services in China...

According to Beijing Business Today, China Telecom is aiming to place a blanket ban on all Data-Voice communications, including voice message services and pier to pier voice networks, and has been experimenting in Beijing, Shanghai, Guangzhou and Shenzhen.

This report has yet to be confirmed as accurate.

When asked for comment on the blocking of Skype services, a representative for the Guangdong telecom interest said that service center staff had been only instructed to tell consumers that Skype and other Internet telephone services were illegal, and that they were prohibited under regulations introduced in 2004 to preserve “market order”. The representitive also said that the downloading of Skype software over the China Network was also prohibited.

The Angry Chinese Blogger's analysis on why this occurred:

Although its ability to compete with state owned firms is likely to make Skype and other VoIP technologies a concern for Beijing, another of their concern is likely to be that data based voice services are harder to track and tap than traditional telephone systems.

Where as a conventional telephone signal uses a standard form of encoding that is publicly known, uses a single circuit between two fixed points, and can be tapped directly through the use of a wire tap or indirectly through monitoring equipment built into telephone exchanges, Skype uses AES - Advanced Encryption Standard - block cipher encryption, and its messages are split up and routed over multiple paths and through multiple servers, making Skype calls more difficult to track calls back to those making them and exponentially more difficult to eavesdrop on.

China currently demands that all businesses using encryption to transmit and protect data in China hand their ‘keys’ over to Beijing. As Skype does not have an official presence in Mainland China, but instead allows users to subscribe externally, it has not complied with Beijing’s demands...

Coincidentally, the block on SkypeOut comes hot on the heals of prospecting by Hong Kong based corporation Tom Online, Skype’s Chinese partners group, to provide a fee paying VoIP service on the mainland.

VoIP services provided by Tom Online do not use the Skype software package and are likely subject to direct censorship and monitoring by Beijing. Skype services are not currently subject to such intrusions.

Simply put, the Chinese government doesn't like means of communication into, and out of, China that it does not fully control.

See related story about how China requires control of Yahoo China information in order to monitor flow of "sensitive" information.