China has moved to protect its fixed telephone line business by banning free Internet telephone services for at least two years, the Financial Times reports.

Wang Leilei, chief executive of Chinese internet portal group Tom Online, which has a joint venture with Luxembourg-based telephony provider Skype, said China would not issue any licenses for computer-to-telephone calls until 2008.

The government "is not going to issue VoIP (Voice over Internet Protocol) licences until 2008," Wang told the newspaper.

The move would likely be major setback to Skype, which was reportedly in talks last year with Chinese telecom operators to launch its computer-to-telephone service, SkypeOut.

Wang, whose company is controlled by Hong Kong's wealthiest businessman Li Ka-shing, played down the decision.

For Tom Online, "our strategy is to grow our user base. With a big user base, there is a lot you can do. Revenue (from SkypeOut) is not important to us because we have not put in a lot of cost," he said.

Skype is a leader in VoIP and provides a subscriber service that enables web users to make ultra-cheap or free phone calls using an Internet connection on their computers.

Skype's computer-to-computer calls are free while computer-to-telephone calls are charged at rates often much less than with fixed line services.

China Telecom has described Skype's services as illegal and the newspaper said last year that China was experimenting with software in Beijing, Shanghai, Guangzhou and Shenzhen to block them.

Fixed-line operators are concerned that SkypeOut could undermine their core business.

Last September US technology group Verso Technologies admitted that it had sold software to an unnamed major Chinese telecoms firm that would allow China to block such telephony services.