They laughed. They thought we were crazy. Three and a quarter years ago when TMC
launched INTERNET TELEPHONY magazine, proposing that a revolution was
coming that would sweep across all four corners of the telecommunications
landscape, many diehard "circuit switchers" thought we had more than a
few loose screws banging around in our heads.
Well, I can tell you with absolute certainty that they are laughing no more.
Three years later, the revolution has arrived with a vengeance -- and the impact
of packet-switching technology is being felt all the way from Wall Street to
Main Street. It is also evident from the IP SIP-compliant phone you can now hold
in your hand to large-scale carrier-class gateways and gatekeepers residing on
the edges and in the hearts of today's massive networks.
The technology has matured with breathtaking speed, to the point where it is
sometimes impossible to tell a circuit-switched or IP-based phone call apart.
Complaints about sound quality have been replaced by great excitement over the
coming availability of a slew of IP-based enhanced services never before
possible under circuit-switched conditions.
Along with this stunning technological innovation and growing market
acceptance has come the gold rush. Wall Street is finally placing valuations on
Internet telephony listings in line with other red-hot areas in the Internet
space, and there is acknowledgment by analysts and investors that this stuff is
here to stay (see chart below). Venture capital firms and investment houses are
also digging deep into their pockets. This access to capital is allowing
formerly cash-starved VoIP equipment startups to put world-class talent on the
development and fine-tuning of world-class solutions, and allowing the VoIP
service providers to budget for mass market promotional and marketing
THE DEAL FOR NET2PHONE
A startling case in point to illustrate how far we have come in a ridiculously
short space of time: The battle for Net2Phone.
Rumors were swirling a few weeks ago that AOL was on the verge of signing on the
dotted line to acquire the Web-to-phone calling leader and developer of
voice-enhanced Web-based communications -- a move that would have turned AOL
into a bona fide global telephone company. It seemed to be a perfect fit. But
then even more startling news came over the wire.
An AT&T-led consortium of companies made public their intent to acquire a
39-percent voting stake in Net2Phone. This consortium includes Liberty Media,
British Telecom, and AOL. AT&T plans to invest $725 million for a 51-percent
interest in the consortium, while the other partners are expected to purchase
the remaining partnership interest. Considering that it was these same players
(AOL excluded) that pooh-poohed Internet telephony in the early days and
considered it be a technology "without teeth," this deal is even more
telling: Internet telephony has truly come of age.
THE NITTY GRITTY DETAILS
As reported on our latest-breaking news site TMCnet.com a few days ago, the
consortium will purchase four million newly issued Class A shares from Net2Phone
at a price of $75 per share. In addition, the consortium will purchase 14.9
million Class A Net2Phone shares from IDT
Corporation, Net2Phone's controlling shareholder, for $75 per share.
Following these transactions, the consortium will have a 32-percent economic
stake in Net2Phone for a total cash investment of approximately $1.4 billion.
There is a also a right of first refusal to purchase IDT's remaining stake of 10
million Class A shares in Net2Phone, which if exercised would give the
consortium a 59-percent voting interest and a 48-percent economic interest in
What can we expect to see as a result of this deal? Net2Phone will be able to
market services to AOL's 22 million subscribers. AT&T and Net2Phone plan to
jointly develop new Internet voice applications for cable telephony and the
business communications market -- with a vision of making telephones, Web pages,
and fax machines extensions of each other.
The potential ramifications of the deal are exhilarating -- it portends the
coming of free phone calls for consumers and new jaw-dropping services for
businesses of all sizes. From all of us at Internet Telephony magazine, we hope
you'll continue to join us in exploring all that is to come.
Marc Robins is Vice President of
Publications, Associate Group Publisher, and Group Editorial Director. His
column, Mind Share, appears monthly in the pages of INTERNET TELEPHONY
magazine. Marc looks forward to your feedback.