Big guns take control of Net2Phone

A consortium led by US telco IDT, which includes AT&T and cable television company Liberty Media, has taken a majority stake in Web telephony provider Net2Phone. The news was followed by the resignation of Net2Phone's chief executive.

Under the terms of the new agreement, the three companies will share 49 per cent ownership of Net2Phone and 60 per cent of the voting power.

Net2Phone president Stephen Greenberg said the transaction would provide the company with an opportunity to work much more closely with two of the industry's leaders.

"IDT and Liberty Media have been tremendous drivers of innovation in the industry from long-distance phoning to advances in the cable industry both here and abroad," he said. "The combination of interests and support will provide us with a great opportunity to improve shareholder value."

IDT and AT&T contributed their shares of Net2Phone, approximately 10 million and 18.9 million respectively, to a newly formed limited liability company. Liberty then purchased a substantial portion of the new company's units from AT&T. IDT, which spun-off Net2Phone in July 1999, will be the managing member.

Susan Richardson, an analyst at Gartner, said the initial view of voice over the Internet as a low-end offering is changing towards a vision of converging voice and the Internet towards a new range of services, such as unified messaging, bundled voice and data services and call centre applications.

"With a controlling interest they can impact future directions of the company and service innovation to leverage offerings for their own services," she said. "This gives Net2Phone a more credible future when many other VoIP providers face financial pressures, and more focus on broadband integrated offerings including for cable."

After reporting a fourth-quarter net loss, Net2Phone said its chief executive, Howie Balter, has resigned to pursue other interests. Balter will, however, serve as a consultant to the company for the remainder of the year.

IDT chairman Howard Jonas was named acting chief executive, and will become Net2Phone's chairman on the resignation of Clifford Sobel, who has been nominated to become US ambassador to The Netherlands. Greenberg will then become chief executive.

Net2Phone reported a loss from continuing operations for the quarter ended 31 July of $18.3m, or 32 cents per share. This was ahead of a consensus net loss estimate of $23.8m, or 41 cents per share, and compares with a loss of $16.2m, or 29 cents per share, from continuing operations a year earlier. Costs fell to $76.2m from $109.4m in the year ago quarter.