BT snubs IP telephony investment

BT has passed on an opportunity to get a foothold in one of the world's leading internet telephony providers.

US telco AT&T said on Friday that it would pay £1.4bn for a 32 per cent stake in Net2Phone. In April, BT confirmed that it was in discussions with AT&T about a joint investment in Net2Phone, but the UK telco was not involved in Friday's announcement.

Analysts said that while internet telephony may cannibalise BT's voice telephony revenue in the short term, the telco must embrace the technology to keep up with fast-moving new entrants that will offer voice services using IP telephony at very low costs.

A BT spokesman said: "We were not committed to buying a stake. We announced earlier this year that we were in discussions with AT&T over the possibility of taking part in a holding company."

He added that it "remains to be seen" whether BT will invest in Net2Phone in the future.

AT&T has agreed to fully pay $75 a share or $1.4bn for the Net2Phone stake. Research company Frost and Sullivan said that it counts Net2Phone among "the IP services market frontrunners in the race to claim a larger share of the overall market".

Ian Rowlands, an IP analyst at Frost and Sullivan, said: "Companies offering these types of services will influence the market and could become significant players. There has been a glut of telcos utilising IP telephony over the past 18 months and we expect a lot more to enter."

Bill Dixon, European telecoms analyst at Robertson Stephens, said BT should be looking for a stake in an IP telephony provider, but believes that the telco has run out of money.

"Although you would think BT would be shooting itself in the foot, IP is a very valid and cost effective way of carrying telephony services," he said.

"BT is going to have to become more involved in IP telephony because it is going to become pretty much a freebie, to throw in alongside data-based and video-based communications products."

Last month Microsoft forged a deal with Net2Phone to offer free phone calls as part of its instant messenger service. The MSN Messenger service integrates Net2phone's PC-to-phone technology to let users make free computer-to-phone calls to the US and Canada.

US software developer Go2Call also offers free PC-to-phone internet telephony services that enables users to make free calls to the US, Canada, UK, Ireland and Germany.

AT&T will eye internet telephony as a way of reducing costs, cutting out the expense of connecting calls over traditional networks. Frost and Sullivan expects the IP services market to soar as an "exploding number of ISPs and a slew of telcos utilise IP telephony in order to avoid arbitrage charges".

In April it was reported that AT&T, BT and US cable TV programming company Liberty Media had formed an alliance to acquire the 32 per cent stake in Net2Phone. Under this alliance it was expected that AT&T would invest $725m for a 51 per cent interest with BT and Liberty buying the reminder.