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Technology Stocks : IDT *(idtc) following this new issue?* -- Ignore unavailable to you. Want to Upgrade?

To: vinh pham who wrote (9085)	6/9/1999 11:23:00 AM
From: SteveJerseyShore	Respond to of 30916

Net2phone vs. Delta 3 (RSLC), May 31, 1999, Issue: 411 Section: News Analysis Voice Over IPO -- Internet Telephony Looks To The Capital Markets For Growth Jason P. McKay It's hard to imagine anyone being surprised by Internet telephony players cashing in on Wall Street's fascination with the Internet. Yet moves this month by at least two voice over Internet protocol (VoIP) providers to launch initial public offerings (IPOs) may represent more than a simple cash grab before this money fount runs dry. More likely, it shows these providers need financing quickly if they are to upgrade their services in order to survive as their basic offering-cheap voice service-becomes commonplace and competition from established carriers grows. The threat from larger traditional carriers is already real. AT&T Jens (Tokyo), in which AT&T holds a majority interest, has already begun testing the Internet telephony waters. Others are expected to follow, and their substantial financial backing, technical and marketing resources, and greater brand recognition make them formidable competitors, especially as VoIP transcends basic service to include offerings not readily available, such as unified messaging and videoconferencing. Long-distance carrier RSL Communications Ltd. (Hamilton, Bermuda) began the move when its VoIP subsidiary, Delta Three Inc. (Jerusalem), announced it would sell up to 20 percent of the company for an undisclosed amount sometime in the third quarter of this year. Net2Phone Inc. (Hackensack, N.J.), owned by IDT Corp. (Hackensack), quickly followed suit, reporting it would raise up to $50 million through an IPO "as soon as practicable." Neither company was willing to comment on their moves beyond what was noted in brief releases or required through filings with the Securities and Exchange Commission (SEC). Yet sources close to Delta Three note its move reflects the financial strain it was under because of the limited support it was receiving from RSL, which is in the midst of its own year-long acquisition and fiber-network build-out binge that's eaten up hundreds of millions of dollars. "RSL is doing a lot of acquisitions, those are obviously very expensive, and it's doing a lot of network build-out," says one source. "The money that it has is not necessarily allocated toward the development of unified messaging and things like that." When the windfall comes, the source indicates, Delta Three will direct the money toward cost-intensive technical and product development, and an expanded Web presence needed to enhance Delta Three's service and brand. Net2Phone's filing with the SEC states that $7 million of its IPO proceeds will be used to repay half of an outstanding note to IDT. The balance of the proceeds will be used for the development of strategic Internet relationships, advertising and promotion, research and development, and upgrading and expanding its network. Ultimately, the test will be how well the carriers use the funds to generate new revenues by aggressively financing enhanced VoIP applications. "The whole big thing for a while was taking advantage of tariff arbitrage," says Peter Nighswander, the director of computer telephony at The Strategis Group (Washington, D.C.). But now VoIP providers are realizing that services like unified messaging and teleconferencing are the way to go. "I'm not sure whether Delta Three's parent, RSL, is putting the pressure on it," he says. "But I think that if Delta Three really wants to grow, it needs to get an equity infusion." There could also be some simple mathematics involved in establishing these stocks. "RSL was not getting the benefit of having Delta Three under its market valuation," says Andrew Schroepfer, research analyst at US Bancorp Piper Jaffray (Minneapolis). "So by spinning this out, RSL can point to this and say, 'Here's the valuation of Delta Three.'" Delta Three, Net2Phone and any other VoIP carriers that follow in their wake are likely to see plenty of value in this strategy as well.