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Net2Phone forms Adir with Cisco stake

Net2Phone Inc. (Nasdaq: NTOP) announced Monday it has formed a new company for network management software for Voice over IP, Adir Technologies. Cisco Systems, Inc. (Nasdaq: CSCO) has purchased a minority equity interest in the new company.

Cisco will market Adir's network management platform to its VoIP customers. Net2Phone said it will receive substantial revenue from software licensing fees from the Cisco relationship. Net2Phone executives said separating the product-oriented business from the general services business should increase shareholder value.

Net2Phone shares were down 0.81 to 33 Monday at 10:15 EST, despite having risen as much as 6 percent on the Island ECN before market open. Cisco shares slipped 0.63 to 62.13.

The company, which first made a splash by charging bargain rates for long-distance phone calls made over the Internet, is transitioning into marketing software because it finds the Internet Telephony market increasingly crowded and unprofitable, according to an article in Monday's Wall Street Journal.

In response to a question on Monday morning's conference call, asking whether Net2Phone's move was a change in strategy, as the Journal story alleged, CEO Howie Balter said the paper misinterpreted the move. "We're not giving up anything ... our services revenues are as robust as ever," Balter said. "I wouldn't characterize what we're doing as a shift ... we're diversifying," he added, saying that the new business "may not have the competitive pressures as the services business."

Balter also said that in the year since it went public, Net2Phone has realized that its underlying technology is something that differentiates it from competitors. Adir is the realization of a plan to "productize that technology."

Officials also said all Adir's products will be interoperable with Cisco powered networks over the next few months. Adir's products will be offered as early as the middle of the calendar year next year, the company said, at which point Adir will recognize revenue. Results will be consolidated with Net2Phone's.

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