China's state-owned telecoms company China Telecom has started blocking access to Skype, the increasingly popular internet telephone service that offers free calls over broadband connections.

Local media in the southern city of Shenzhen reported that China Telecom, which is China's largest fixed-line phone operator, began blocking access to the service, saying it was a threat to its long-distance revenues.

The service was still working in Beijing and Shanghai yesterday, but China Telecom is planning to eventually block access to Skype, which is run by Skype Technologies SA, across the country.

The company has a blacklist of people who use the service and has threatened to fine anyone trying to get around the obstacles.

"Under the current relevant laws and regulations of China, PC-to-phone services are strictly regulated and only China Telecom and (the nation's other fixed-line carrier) China Netcom are permitted to carry out some trials on a very limited basis," a China Telecom spokesman was quoted as saying on the country's Xinhua news agency.

China blocks access to websites on politically sensitive subjects such as the Falun Gong spiritual movement and the 1989 crackdown on Tiananmen Square, but generally won't block sites for economic reasons.

Skype allows people to make free international phone calls from their computers to other users and also allows people to make calls from their PCs to regular phones for a reduced rate. A call to Ireland, for instance, costs about 2c a minute with Skype compared with China Telecom's rate of nearly €1 per minute.

Long-distance business accounts for about 20 per cent of China Telecom's revenues.