NEW YORK (AP) -- An investor group led by AT&T Corp. is paying $1.4 billion in cash for a 32 percent stake in Net2Phone Inc., a provider of cheap long-distance calls over the Internet, the companies announced today.
The deal, which includes AT&T's global partner British Telecommunications and AT&T's investment arm Liberty Media, values Net2Phone at $75 a share.AT&T will put up $725 million of the purchase price for a 51 percent stake in the consortium, which will also have the ability to gain operational control of Net2Phone if parent company IDT Corp. chooses to sell its remaining equity.
The agreement, coming just days after Liberty Media bought a 10 percent stake in IDT, further confirms that Internet phone calling is emerging from the fringes of technology into a more viable business.
Phone calls over the Internet have always been cheap, but poor quality has discouraged their widespread use, especially with prices plunging for calls made over the near-perfect connections of traditional telephone systems.
Net2Phone, based in Hackensack, N.J., is the early leader in the fast-growing market for routing phone calls over the Internet and enabling people to use their computers and Internet connections to avoid costly charges from local and long-distance carriers. The service, with 600,000 active users, is particularly popular among overseas callers.
Other players include deltathree.com and PhoneFree, as well as a new upstart named dialpad.com, which is offering free calls in hopes of building a large enough customer base to make money from advertisements on its Web site.
The growing interest in these companies shows how the frenzied race to upgrade the Internet for floods of Web traffic is also helping minimize the crackles and voice delays of Web phone calls.
Internet calls are transmitted using the Web language known as Internet Protocol, or IP for short. By using IP, a phone conversation can be broken down into the same type of digital packets used to send information across the Internet.