Net2Phone Is Making Noise in PC-Voice Arena
AT&T; Corp., Yahoo Inc. and America Online Inc. are making big investments in Net2Phone Inc., propelling an upstart provider of cheap phone calls via the Web to the forefront of efforts to merge voice and computer networks.
In addition to cementing relationships with several of the most prominent providers of consumer services on the World Wide Web, the deals announced Friday may help solidify Net2Phone’s position as a leader in the business of PC-to-telephone communications.
Net2Phone, based in Hackensack, N.J., is a pioneer in enabling people to use their personal computers and Internet connections to avoid costly charges from local and long-distance carriers.
The service, with 700,000 active users, is particularly popular among overseas callers, who are willing to put up with the lower quality of Internet calls because they are accustomed to paying much higher rates than the nickels and dimes now charged for domestic long distance.
Many telecommunications experts believe that voice calls will soon be transmitted the same way data are today over the Internet--as packets of digital bits rather than as waves of electrical impulses. The change will allow telecommunications companies to offer more flexible services to customers, including integrating voicemail and e-mail and giving travelers a single phone number they can use around the world.
Because data calls are less heavily regulated than voice calls, some companies are already making money by transmitting calls internationally at lower rates than conventional connections and offering their capacity to international phone carriers at a discount. AT&T; and British Telecommunications, two partners in the consortium that announced Friday’s biggest investment in Net2Phone, are partners in Concert, a company providing that service in 17 countries.
AT&T;, BT and AT&T; investment arm Liberty Media Group agreed to pay $1.4 billion in cash for a 32% stake in Net2Phone. AT&T; will put up $725 million of the money for a 51% stake in the consortium, which also will have the ability to gain management control of Net2Phone if parent company IDT Corp. chooses to sell its remaining equity.
Also Friday, Yahoo agreed to buy a 5% stake in Net2Phone for stock valued at $150 million.
America Online, meanwhile, is expected to increase its 5% holding in Net2Phone in the next few days, said Howard Jonas, chief executive of IDT, adding that a separate deal with Microsoft Corp. is also in the works.
Friday’s dealings will place Net2Phone on two prominent Web portals, AT&T;’s WorldNet dial-up service and its high-speed cable venture with Excite@Home. They also may solidify Net2Phone’s place in the Yahoo People Search directory service and AOL’s popular instant messaging services, Instant Messenger and ICQ, which have more than 100 million users combined.
While phone calls over the Internet always have been cheap, sound quality has been greatly hampered by technological obstacles, including the unpredictable paths that data packets take on the Internet when traveling from source to recipient. That means that some data reaches users’ computers before others; that’s not a problem when the data are on a Web page, but it sometimes makes voice communications unintelligible over the Web. By contrast, a traditional phone call is sent over a network as two continuous voice streams, one from each end of the conversation.
But now, the growing interest in companies like Net2Phone suggests that the frenzied race to upgrade the Internet for floods of Web traffic also is helping minimize the crackles and voice delays of Web phone calls.
The deal values Net2Phone at $75 a share, or about $20 above Thursday’s close of $55.38 on Nasdaq. In Friday’s trading, Net2Phone rose $3.75, or 6.8%, to close at $59.13 on Nasdaq.
