Finding telecom friends: Net2Phone teams with the big players

Since its IPO a month ago, Net2Phone has made several moves to partner with some of telecom's biggest players and push its IP voice service into the mainstream. The company's recent maneuvers include deals with AT&T and Sprint.

With the AT&T deal, Net2Phone can move into 17 additional countries and offer quality of service (QOS) agreements, which are key to transforming the offering from an inexpensive international long-distance option into a value-added service.

The Sprint deal means backing from a marketing powerhouse that will push calling cards designed for calls originating or terminating in Asia. Eventually, the Sprint deal also will incorporate value-added services.

Teaming with several companies has been part of Net2Phone's game plan since the beginning, said David Greenblatt, the company's chief operating officer. "To succeed in this market, you need to have relationships with the existing phone companies. These companies want to be a part of this new world," he said.

These deals and the $95 million raised in Net2Phone's IPO are indicative of industry trends, said Greenblatt. "What you have is a funding process to build a map of the world for the future. This is a new model that is letting people build quickly, and it will eventually be good for the consumer."

Phone cards and QOS deals may look different from the company's original business plan. "But they would have been the first to tell you that cheap minutes were a way to fund their ultimate goal [of offering more services]," said Pete Dailey, managing partner of the packet telephony group at Frost & Sullivan.

With money pumped in from the outside, the company likely will start buying other smaller companies. "They don't need to acquire technology, they need to acquire customers and termination," Dailey said.

The two areas ripe for Net2Phone's picking are companies offering e-mail services and smaller ISPs in areas such as Indonesia and Taiwan, Dailey said. "They are underserved and expensive routes. Using the Internet gives them a great price differentiation to get in the door," he said.

These niche markets also allow Net2Phone to stand out among an increasingly crowded field of small carriers. "I don't think that they are a mass market player right now, even though they do have the potential and the desire," Dailey said.