By Erik Dahl
Beijing. November 23. INTERFAX-CHINA - Throughout Beijing, small shops, newsstands and convenience stores are now offering PC-to-phone VoIP (voice over internet protocol) calling services, instead of using traditional long distance services offered by the country's fixed-line operators.
The reasoning behind this move to VoIP calling at 'phone bars,' small storefronts that offer nothing more than voice calling services, is simple. The owners of these 'phone bars' charge customers the standard price of RMB 0.3 (USD 0.03) per minute for long distance calling, but pay only about RMB 0.1 (USD 0.01) per minute for the PC-to-phone VoIP calls. Shop owners are keeping as much as 60% of long distance fees for themselves, while China Netcom, the dominant fixed-line telecom operator in Beijing, is losing more and more of its long-distance revenues.
"All the shops started switching to VoIP about eight months ago, but they've continued to charge the standard long-distance rate,'" one shop owner told Interfax. "That's a substantial profit."
In September, 'phone bars' in Shanghai had average monthly sales of between 15,000 and 20,000 minutes, Chinese newspaper The National Business Daily reported. A single shop can earn between RMB 3,000 and 3,600 (USD 371 to 445) per month from offering VoIP services.
The storefront VoIP service uses a traditional telephone that is connected to a PC, thus requiring no interaction between customers and a computer. Customers simply pick up the phone and dial unaware the signal is being routed through a computer behind the counter. Interfax found that the signal quality was nearly identical to standard long distance services. As a result, customers are unlikely to know that they have been using VoIP services.
The only difference is the price. In one part of Beijing visited by Interfax, competition between five different 'phone bars' in a 100 meter stretch had driven the price down to RMB 0.2 (USD 0.02) per minute and prevented shop owners from cutting corners with cheaper, poorer quality equipment. In other parts of the city, the price was only RMB 0.15 (USD 0.015), or half the rate charged by telecom carriers.
Setting up a phone bar is not expensive. A computer, a few phones, a voice gateway and a broadband internet account are all that is needed and requires under RMB 10,000 (USD 1,239), and the software can be downloaded for free. Operators install multiple phones, with most stores have between six and eight phones, to get the most out of their investment. One storeowner told Interfax she could install as many as 20, but her shop did not have enough space.
Despite Chinese government regulations that allow only Chinese telecom operators to offer PC-to-phone VoIP calling, the number of PC-to-phone users is expected to reach 3.4 mln by the end of this year, according to iResearch, a Shanghai-based research firm. Illegal VoIP services have already had an impact on telecom revenues. The estimated 15,000 'phone bars' in Shanghai could be taking between 225 mln and 300 mln minutes of long distance calling away from telecom carriers every month, or between RMB 67.5 mln and 90 mln (USD 8.35 mln to 11.13 mln) in revenues, The National Business Daily reported.
The majority of the users are migrant workers calling their families, 'phone bar' owners told Interfax. Websites set up especially for 'phone bar' operators suggest that new proprietors set up shops with a high number of migrant workers. Beijing alone is home to roughly 4 mln migrant workers.
While VoIP has had an impact on domestic long distance services, VoIP has not yet affected international rates, due to a lack of demand for the service. Only one of nine 'phone bars' visited by Interfax offered VoIP international calls, and the price was no different from the standard, non-VoIP, international rate of RMB 2.4 (USD 0.30) per minute.
VoIP services have nonetheless had an impact on the earnings of the country's telecom operators. While 'phone bars' are eroding domestic long-distance revenues, other VoIP applications such as Skype that are downloaded over the internet by individuals at home are eroding international long-distance revenues.
Although Skype does not directly provide PC-to-phone calling services in China, any Chinese user can buy Skype calling time using international credit cards. The rate for Skype call from China to most destinations in the world, such as the United States, is as low as EUR 0.017 (USD 0.021) per minute. In comparison, China Telecom charges RMB 3 (USD 0.37) per minute for calls to the U.S. China Telecom temporarily block Skype in Shenzhen in September of this year, and is now working on solutions to block VoIP calling applications nationwide.
Representatives from China Telecom and China Netcom declined to comment.
But they are also not the only ones being hurt by these new VoIP 'phone bars.' Stores that did not offer VoIP services complained that VoIP had affected their business, and accused stores that charged less than the standard rate of fraud. One shop owner who did not offer VoIP services accused VoIP providers of using software to make calls appear as if they lasted longer than they actually did.
"They say it's RMB 0.2 (USD 0.02) per minute, but their 'minute' only lasts 40 seconds," she said.