The possibility of technical glitches also looms. Building a network this large and depending on a technology this new has risks. It is a delicate dance between enticing legions of customers to jump on the bandwagon and building the capacity to support them if they actually show up. Bandwidth is an issue. Maintaining voice quality and security in the face of overwhelming usage is an issue as well.

But Unicom officials believe that they have a winner. Their investment of a billion yuan, or about $120 million, is significant -- but it's only about 30% of what the company would have spent to build a traditional telephone network and compete for the business of these same customers. The 5,000 high-speed E-1 lines (analogous to T-1 lines in the United States) in Guangzhou alone provide enough bandwidth for 10 times the number of minutes currently in use on the nationwide network, and Unicom continues to add capacity. And the rapid rise in numbers of customers using the IP service is testament itself to customer satisfaction, say officials.

American hardware providers like Cisco Systems, Sun Microsystems, and 3Com are betting that Unicom is right. They all have benefited from the infrastructure investments made by Chinese telecom providers, and Unicom uses hardware from all three companies. Of the three, Cisco has the biggest stake: In June, Cisco and Unicom announced a partnership under which Cisco will provide network hardware and engineering support to Unicom for all of its future VOIP needs.

With Cisco unable to expand in the United States during the current economic slowdown, IP telephony represents a major opportunity for the networking giant. "China has a population of a billion people," says Alec Henderson, manager of product marketing for Cisco's Voice Technology Center. "Because of that market's sheer size, there's almost unlimited potential. You can make any estimate you want about potential market share."

Alison Overholt (aoverholt@fastcompany.com) is a Fast Company staff writer based in Silicon Valley. Learn more about China Unicom on the Web (www.chinaunicom.net).

Sidebar: Caller ID

Few Americans are as familiar with voice over Internet protocol (VOIP) as the customers of China Unicom are. But Americans may be using this technology without even knowing it. If someone in the United States makes regular calls to China -- or to Australia, Germany, or any of the other 65 countries served by iBasis Inc., a 5-year-old outfit in Burlington, Massachusetts -- that call may have been carried over an IP network.

Unlike China Unicom, which contracts directly with customers to provide VOIP service, iBasis is a wholesaler of VOIP service. Long-distance companies subcontract with iBasis to put calls through using IP telephony. If iBasis does its job right, end users aren't able to detect a difference in sound quality between VOIP calls and traditional calls -- and they may never realize that they've used IP service.

IBasis serves more than 110 carriers worldwide, including 10 of the 11 largest long-distance companies in the United States. According to CEO Ofer Gneezy, it carries about 20% of the voice traffic from the United States to China. "Not only that," he says, "but our network carries between 10% and 35% of calls to 14 other countries from the U.S., including Russia and Brazil." Gneezy adds that iBasis sells its IP services at a discount of up to 25%.

Do customers see any of that savings? "It depends," Gneezy admits. "Carriers may decide to pass some of that on to customers. But they may also use the lower cost of providing the calls to realize higher margins."