An unidentified China Telecom employee told China Internet Informatin Center's China.org.cn that there had been a significant financial investment in Vnet Messenger (VIM) development in a China Telecom branch in the Guangdong province. The software, which is designed to handle voice over Internet Protocol telephone calls, file transfers and Internet meetings, is currently being tested.

The employee also told the Web site that China Telecom saw the software as a way to stem losses to rivals' instant-messaging systems. With VIM, losses from China Telecom's traditional telephone services to instant messaging can be directed to China Telecom's own IM service.

China.org.cn reported that China Telecom "experts" said VIM would focus on entertainment services such as online games and ring-tone downloads. VIM will be packaged with a fixed telephone service, e-mail and, later, with 3G (third-generation) phone services. The Chinese name for VIM has not yet been announced.

As instant messaging becomes more popular, easier-to-use and feature-enhanced, Asian consumers are switching from the traditional telephone to instant messaging for communication--a trend already appearing in the United States and Europe.

The market leader for instant messaging in China is QQ, developed by Tencent, a Chinese company. China.org.cn said the total number of MSN Instant Messenger and QQ users in China was close to the number of telephone users.

China's Ministry of Information Industry began examining value-added service provider (VSP) qualifications and licensing in August 2003, and it is possible that the ministry will soon begin licensing VSPs. Some local companies have already been licensed for commercial experimentation in virtual services.

China.org.cn said foreign enterprises would probably find it easier to enter the VSP industry than to enter traditional telecommunications fields.

The news Web site estimated there were more than 3,000 VSPs in China, together with several hundred Internet service providers and foreign VSPs, making for a very competitive virtual-services market.

China Telecom may also be restricted geographically, as it is a telecom company, while multinational corporations such as Microsoft and Yahoo have greater worldwide reach for their instant-messaging software.