Net2Phone to offer services to small businesses

The Internet-based phone services company has captured a big chunk of the consumer market with its Internet-based phone service. Now it wants to tackle the needs of small business.

! EDS 9:40 am: moves up analyst quote to grafs3,4 --> Net2Phone has captured a big chunk of the consumer market with its Internet-based phone service. Now it wants to tackle the needs of small business.

Net2Phone, whose software and network allow people to make cheap long-distance calls over the Net, will soon sell a device that will allow

Net2Phone at a glance

HQ: Hackensack, NJ  
CEO: Howie Balter  
Chairman: Cliff Sobel  
Employees: 333  
Annual sales: $33.3 Million  
Annual income: ($24.7) Million  
Market cap: $2.7 Billion  
Date of IPO: July 1999  
Ticker: NTOP  
Exchange: Nasdaq

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Bloomberg (2/18/2000)
U.S. businesses to easily turn their Net connection into their phone system.

Analyst John Cha, of market research firm Frost & Sullivan, said Net2Phone's foray into the small business market with the six-phone device is a smart move.

"It brings the brand name to everyone, and that's important," Cha said. "It's another way to leverage their network and add more minutes--and that's what counts in this industry."

The upstart Internet telephony firm is negotiating with U.S. retailers and computer stores and hopes to have the product in store shelves within six months, said a company spokeswoman. Net2Phone already sells the device, currently called IP Max, internationally.

The device will allow small businesses with as many as six employees to make Internet-based phone calls with their regular phones. They simply plug the device into their traditional circuit-based phone system, often called a PBX. Businesses can choose to make free calls over the public Internet or pay a fee to use Net2Phone's private Internet-based network, which can offer better voice quality, the spokeswoman said.

"If you want to connect to our network, it obviously costs more, but if you have an existing (private line) or similar fast Internet connection, that should be good enough," Sarah Hofstetter said.

With its latest move, Net2Phone will compete against networking firms 3Com, Cisco Systems, Nortel Networks, Lucent Technologies and others in the low end of the small business market.

The networking firms are all selling Internet-based PBXs to small and mid-sized businesses as a cheaper and easier alternative to traditional technology.

The difference between the products is that Net2Phone's device allows businesses to continue to use its PBX phone system, while the other networking firms' products serve as replacements, Hofstetter said.

The companies are all going after an emerging Internet telephony market, where Net-based phone calls are often cheaper than traditional long-distance phone calls. For example, a Net2Phone user in the United States can call London for 8 cents a minute.

The small business market is a new strategy for Net2Phone, which has focused primarily on the consumer market through a series of high-profile alliances with Web sites such as Yahoo and Netscape, PC makers like Compaq Computer, and long-distance carriers like Sprint.

Traditionally, Net2Phone subscribers had two ways to make Net-based phone calls: They dialed a number using the company's software on a PC and spoke through a PC microphone; or they dialed a regular phone using a calling card. All the calls are routed through Net2Phone's private Internet-based network.

The company, which competes with, and others in the Net telephony market, has traditionally tried to get its software in front of as many consumers as possible. Last summer, for example, Net2Phone inked a deal with America Online, which is integrating Net2Phone's technology into its popular instant messaging software, called ICQ and Instant Messenger.

But lately, the company has been trying to get its software installed in more hardware devices. The company recently announced two deals that would allow consumers to make long-distance calls directly through Panasonic phones and 3Com modems.

Net2Phone's Hofstetter said the company will soon sell a headset for consumers who use their PCs to make Net phone calls.

She declined to comment on rumors that America Online is interested in purchasing a bigger stake in the upstart Net telephony firm. AOL, which recently purchased Time Warner, currently owns about a five percent stake in Net2Phone.

Cha said it would make sense for AOL to be interested in Net2Phone.

"AOL's business strategy is to become a one-stop shop of communications," he said. "And telephony services fits very well in their goal of becoming a leader in the communications market."