http://today.reuters.com/news/NewsArticle.aspx?type=internetNews&storyID=2005-09-09T133130Z_01_BAU948593_RTRIDST_0_NET-TELECOMS-CHINA-CHINATELECOM-DC.XML

The whole thing looks to me like a plot to make back the money China Telecom thinks they lose because of Skype," complained one user in Shenzhen, who said his access was blocked but his wife, also in Shenzhen, was able to access the system.

Other users in Shanghai said they were still able to access the system.

Long distance business is an important revenue source for both China Telecom and China Netcom, accounting for about 20 percent of China Telecom's total revenue last year.

Internet-based services like Skype are putting pressure on both companies to lower their long-distance tariffs, which have been coming down at a rate of about 12-15 percent annually in recent years, said BOC International analyst Alan Ng.

"Eventually (Internet-based phone services) will be a threat," he said. "Whether it's already a serious threat, I doubt it. But it will get even more popular, and certainly that is why China Telecom is very concerned."

U.S. Web auction giant EBay Inc. is currently in talks to buy Skype, a source familiar with the situation told Reuters on Thursday, amid concerns that the European company could crimp highly-profitable eBay's growth.

China Telecom shares were down 0.88 percent at HK$2.80 in Hong Kong on Friday. They are unchanged since the beginning of the year, trailing a 6 percent gain for the broader Hang Seng Index.

Investors are fretting about China Telecom's slowing growth, as they wait for the outcome of a highly anticipated industry restructuring expected to include the eventual awarding of third-generation (3G) mobile licenses.