Internet voice-over-IP (VoIP) telephony service Skype could be banned in China as the government cracks down on what it calls illegal internet telephone providers.
According to a government circular, authorities are collecting evidence for legal cases against providers, reports the Reuters news agency.
Skype is believed to be a likely target although the company was not named in the circular and Skype has not yet been contacted by Chinese government officials.
The Chinese move appeared to be aimed at protecting three government-controlled phone carriers, the report said.
VoIP enables users to make international calls for much less than commercial providers. VoIP is used by many businesses around the world to cut costs.
Analysts said a ban in one of the world's fastest growing markets could dampen investor enthusiasm for Skype as it prepares a 2011 initial public offering (IPO).
Skype has about 124m users around the world. Skype is expected to be valued at about $1bn in the IPO.
News of the potential ban came as the latest version of the Skype iPhone/iPod Touch client added support for two-way video calling over 3G for the iPhone 3GS and iPhone 4 running iOS4.0 or later.
Owners of older iPod Touches or iPads can receive video calls, but not send them, according to Australian reports.
The new functionality can be used to video conference with Windows and Mac Skype users over both 3G and Wi-Fi connections.
Skype is planning similar functionality for other mobile platforms in 2011, with the first scheduled for the end of January.