A Shanghai Communications Administration official told the National Business Daily on September 22 that they could do nothing to enforce the Ministry of Information Industry's July 18 notice on VoIP cafés because it failed to set any punishments.

Though the notice stipulated that no company or individual is allowed to run them apart from China Telecom and China Netcom in designated areas, at least 15,000 VoIP cafés are estimated to be operating in Shanghai alone.

VoIP stands for Voice over Internet Protocol and also known as IP telephony, Internet telephony, and digital phone. It is the routing of voice conversations over the Internet or any other IP-based network and is significantly cheaper for users than standard voice telecommunications.

The same day of its notice, the ministry granted China Telecom and China Netcom permission to establish experimental VoIP services in the cities of Shenzhen, Shangrao, Changchun and Tai'an.

Zhang Tao, who runs a VoIP café in Shanghai, told National Business Daily that he resigned from his job to set it up three months ago, and is now seeking premises for a second.

"You only have to put in 10,000 yuan investment, and you will get back the same amount in less than half a year," according to Zhang, who said his VoIP café earns him 3,000 yuan per month. 

"I set the same price as telecom companies, but I can change it at any time. There's a lot of room to make a profit," Zhang said. Long distance IP telephone services charge 0.3 yuan per minute, but VoIP costs only 0.1 yuan.

In early July, a VoIP café run by a friend of Zhang's had its equipment taken away by an operator.

"It's obvious that VoIP business has badly impacted traditional voice services," said a source National Business Daily described as "close to" Shanghai Long-distance Telecom Administration.

Cai Guangyu, a China Information Industry Research Office consultant, said operators have complex feelings toward VoIP because they risk big reductions in profit whether they invest in it or not.

National Business Daily said five telecom giants, including Telecom, Netcom, Tietong, China Mobile and China Unicom, are developing their own VoIP services, and some underground operators misuse big companies' names.

"Although we may violate regulations, operators have no choice but to start their own VoIP business," one anonymous China Netcom official said.

Professor Xie Linzhen, member of the ministry's Science and Technology Committee, said VoIP is a rising technology, and markets and policies will need to be regulated.