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German telco buys into Net phones

The German telecom giant's $48 million investment legitimizes IP telephony, VocalTec's chairman says.

Europe's largest telecommunications company is dipping into the telephony business: Deutsche Telekom has bought a 21.1 percent stake in VocalTec Communications.

Deutsche Telekom agreed to invest $48.3 million in 2.3 million shares of the Israeli telephony firm at $21 a share, in addition to purchasing $30 million in telephony products, services, and support over the next two-and-a-half years.

VocalTec's stock jumped about 25 percent on the news to a high of 20, from yesterday's close of 15-5/8. Volume was heavy with over 1 million shares changing hands.

"We will work very closely with Deutsche Telekom to help them start offering telephony services," said Elon Ganor, chairman and CEO of VocalTec, noting "This is a major stake they are taking and we believe this will legitimize IP telephony." Ganor noted that the investment is substantial and it will be used to further enhance our its research and development. This is a developing industry with emerging standards and there is a race going on, and it needs further investment, he said.

Despite its sizable investment--it is now VocalTec's largest shareholder--Deutsche Telekom will not have any seats on VocalTec's board of directors.

Ganor said that in order to be the leader in telephony, they need the freedom to provide products to all telcos, and that would not be possible if Deutsche Telekom had a seat on the board of directors.

Deutsche Telekom said it is the first major carrier to develop a portfolio of Internet telephony services to supplement its existing telephone services. And the telco said it sees enormous growth potential in Internet telephony and multimedia business applications via the Internet.

"This partnership gives us the opportunity of quickly developing a high-quality product portfolio for Internet telephony. We are proud to be the first major international carrier to move forward with a full-scale global deployment," said Dr. Ron Sommer, chairman of the Deutsche Telekom AG board of management, in a statement.

The two companies are currently working on the "T-NetCall" pilot in which Deutsche Telekom is giving 1,000 selected customers the ability to communicate via the Internet using a conventional or mobile telephone.

VocalTec's software allows audio, video, data, text, and collaborative communications between personal computers and other devices over the Net.

The deal still awaits shareholder approval.