Rumors are swirling that China Telecom (CHA) is preparing a major VoIP initiative with the express desire to drive out competing services like Skype.

Skype earlier this week announced a joint venture with Tom Online (TOMO) to roll-out VoIP services in mainland China.

People's Daily newspaper reports that China Telecom has been consulting with some software and hardware suppliers on issues related to establishing VoIP services in big cities like Beijing, Shanghai, Guangzhou and Shenzhen.

Local Chinese media also report that a man in Shenzhen had been told by Shenzhen Telecom, a subsidiary of China Telecom, not to use Skype, otherwise he would be fined. This could be the beginning of a business war against foreign interlopers like the Skype service. Yahoo (YHOO) and Microsoft (MSFT) also hope to unveil similar VoIP services soon.

At present, only 263.net has obtained a full license to run IP-based telephone services in China. However, the software of 263.net only provides PC-to-PC phone services, and not the full-fledged services that Skype and Tom Online hope to provide.