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Ailing calling-card business hurts Net2Phone

The Internet telephone company's first-quarter revenue drops partly because of its quicker-than-expected exit from an unprofitable calling-card business.

Internet telephone company Net2Phone on Wednesday said its first-quarter revenue dropped because of its quicker-than-expected exit from an unprofitable calling-card business.

The company reported a net income of $5.1 million, or 8 cents per share, on revenue of $20.4 million. That compares with a net income of $46 million, or 77 cents per share, a year ago.

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Analysts had expected Net2Phone to report a first-quarter loss of 18 cents a share, according to First Call.

Despite falling revenue, Net2Phone Chief Executive Stephen Greenberg said he is optimistic about 2004 because of the ripple effects from cable operator Time Warner Cable's plan to sell telephone services nationwide. The move could challenge traditional phone companies' stranglehold on the local and long-distance telephone markets. Analysts believe the nation's four major traditional phone companies will eventually lose $10 billion in annual revenue to cable operators that sell Internet phone plans.

"Having (our) solution when a major cable operator announces plans to push (Internet telephony) throughout its entire footprint validates us," Greenberg said.

At the close of regular trading, Net2Phone shares were down 23 cents to $5.50.

Net2Phone has two business divisions. Net2Phone Cable Telephony partners with cable operators that want to sell local and long-distance phone service to their high-speed Internet or TV subscribers. Net2Phone Global Services includes international retail voice over Internet Protocol services and a prepaid calling-card business.

Net2Phone said it will completely exit the U.S. disposable prepaid calling-card business by the end of its fiscal year, which is faster than the company initially planned. Sales of Net2Phone disposable prepaid cards dropped to less than 10 percent of the company's total fiscal 2003 revenue, down from 27 percent two years ago, the company said.