Net2Phone switches strategy
Wednesday, May 25, 2005
By MARTHA McKAY
STAFF WRITER
bergen.com
In the early days of Internet phone service, a handful of companies led the way, including Newark-based Net2Phone.
But the pioneering start-up never grew into a household name, and has struggled financially. Now it's pinning its hopes on a different strategy: selling its phone technology to cable TV providers.
Since going public in 1999, Net2Phone has had one profitable year - 2003 - and losses during the rest of its public corporate existence total about $765 million.
The company's share price dropped steadily from a 52-week high of $4.78 last June to a 52-week low of $1.51 on May 13, based on closing prices.
And at least one analyst advises dumping the stock.
But others see promise as the company inks deals to sell its technology to small and medium-sized cable TV providers, allowing them to get into the phone business. The strategy was a switch from the company's original business, which focused on providing consumers with Internet phone calls.
"There is certainly a very significant opportunity out there and they have been relatively successful in getting [cable] operators to commit to them," said Eric Buck, an analyst with Janco Partners, who has an "accumulate" rating on the stock and a target price of $5.
Buck and other analysts will be watching on June 6, when the company announces its third-quarter results, to see if those cable companies are signing up phone customers, a measure of how well the Net2Phone technology is working and whether more cable operators might be likely to choose Net2Phone.
As of Jan. 31, only 14,000 subscribers were placing calls over networks that incorporate Net2Phone technology. All told, the cable operators using Net2Phone's technology pass 2.5 million homes.
Net2Phone has been signing up cable companies since January and is expected to update the aggregate subscriber number on its quarterly earnings call.
The company has signed multiyear agreements with a number of cable companies, including Colorado-based Bresnan Communications, the nation's 13th-largest cable operator.
It has signed deals with Liberty Cablevision of Puerto Rico, St. Louis-based cable operator Millennium Digital Media, and the Altice One group of cable companies, which include Coditel Belgium, Coditel Luxembourg and EST Videocommunication in France. Net2Phone also has a multiyear agreement with Seattle-based Northland Cable Television, which operates in nine states.
Net2Phone began its life as part of Newark-based IDT Corp., a company that sold calling cards and invented a low-cost method of making international calls. IDT maintains a controlling interest in Net2Phone, and the two share a building on Broad Street.
Net2Phone (along with a few others such as Fort Lee-based VocalTec) was in the forefront of sending phone calls over the Internet, developing what were then state-of-the-art technologies.
Some of Net2Phones's earliest ventures involved letting a customer plug a headset (earphones and a microphone) into a personal computer to place calls to another similarly equipped user.
A decade ago, calls routed over the Internet suffered from poor voice quality. But many technology pioneers saw virtues in a method - called VoIP, or Voice over Internet Protocol - that allowed a customer to circumvent parts of the traditional telephone network and send calls anywhere around the world at a very low cost.
Although Net2Phone was in the vanguard of VoIP providers for several years, it ceded ground to aggressive start-ups like Edison-based Vonage, which focused exclusively on the residential consumer market and came along later, when the technology was much improved.
Some analysts believe Net2Phone's consumer strategy has been hampered by its relation to former parent IDT, which sells a package of traditional phone services that competed with Net2Phone's offering. Some suggest IDT and Net2Phone should team up to offer a residential VoIP service to compete with Vonage.
"Whether this endeavor takes the form of a buyout, a joint venture or an increased partnership," wrote Clayton Moran, a Stanford Group Co. analyst, "we believe it could act as a catalyst for Net2Phone's stock." |
