Jane Chen / Shanghai Daily news

Analysts predict a continuously gloomy outlook this year for China's burgeoning Voice over Internet Protocol market due to its policy restrictions on the development of VoIP, today's Economic Information Daily reported.

Only the country's two largest fixed-line telecom operators, China Network Communications Group Corp and China Telecom Corp, have been granted VoIP licenses, which are required before tapping the Internet-based call business.

These license rules have not been loosened much in this short period of time, as the telecom authority is putting priority on the third-generation mobile telecom sector, according to Analysys International, an Internet-based consulting institution, which is cited in the Economic Information Daily report.

VoIP is the most competitive communication service, compared with the existing fixed-line and mobile services, in terms of low call rates. Its expansion is feared to form a strong challenger to the telecom market, which has already seen fierce competition between the mobile and fixed-line sectors, it analyzed.

Favorable policies are not expected for VoIP until 2008 when construction of the country's 3G networks is completed and the fixed line networks depreciate. At that time, the rates of mobile and fixed-line calls will normalize and the price gaps between them and VoIP will be narrowed.

The current gloomy market has deterred VoIP players from home and abroad.

UK-based Iphox Limited quit in one year after its entry into the Chinese market. It dropped its plan last November to continue a five-year 400-million-yuan (US$51 million) worth title sponsorship for China's national football league, after paying 80 million yuan for 2006.

Founded in January 2006, Iphox performed with fast growth, becoming one of the most popular VoIP product companies in the world, with over 100,000 downloads in its first two months.

Domestic players also find it hard to escape the policy stitch, with most VoIP service providers operating in the underground market.

Li Jie bought 600,000 minutes of VoIP call service from Beijing Founder Broadband Network Technology Co for 50,400 yuan last February, and became the company's first national agent of VoIP business.

She started to receive complaints of malfunctions from customers in March, and ended up with a loss of 900,000 yuan and a lawsuit against Founder Broadband, which Beijing Haidian District People's Court ruled as an unlawful VoIP business claim.