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

To: Bill Fortune III who wrote (3047)	3/23/1999 11:44:00 AM
From: Steve Fancy	Read Replies (2) \| Respond to of 30916

SELL SIGNALS: Dial 911 for IDT Judith Graham (3/23/99) IDT Corp. (NASDAQ: IDTC) hopes it's making the right call in banking on its Net2Phone product to propel itself into the next century. We're skeptical. With a 4.9 cent-a-minute domestic calling plan and convenient point and click activation, IDT's Net2Phone PC-to-phone service has been hyped as representing the future of telecom. But three years of promises have yielded little in the way of tangible results. In IDT's latest quarter, Net2Phone generated a mere $7.2 million of the company's total $160.7 million in revenue. And despite a slew of alliances in the tech sector in the past year, we have yet to see the Net2Phone user base increase dramatically. While recent deals show promise, it's unlikely they'll deliver the goods in bulk. In what is arguably its biggest alliance yet, IDT's Net2Phone service will soon be accessible via Netscape's (NASDAQ: NSCP) Communicator web browser and the Netcenter web site. In a deal forged in mid-March, Netscape agreed to feature IDT's Net2Phone service as an icon so consumers can make Internet-based calls directly from their computers to any telephone. Haven't We Met Before? But what may seem like a groundbreaking deal for IDT -- whose stock shot up $4 to $19.31 last week -- really offers little more than similar agreements signed with Yahoo! (NASDAQ: YHOO) and Excite (NASDAQ: XCIT) last year. 'I think it's a great deal -- the agreement as its structured -- but it's really no different from the deal they signed with Yahoo! last March,' said Gregory Miller, a telecom analyst at Jefferies & Co. 'That was a deal in which the stock was driven up, but we've really heard no tangible results.' Riding high on news of an agreement with Yahoo! to provide a direct link to Net2Phone via its People Search tool, IDT's share price surged to $40.25, but fell steadily to $9.50 by early January. Already the same trend can be detected with the Netscape deal (the stock is down to $17.75), despite rumors of an alliance with the Disney (NYSE: DIS)/Infoseek (NASDAQ: SEEK)-run Go Network. While the Netscape deal shows promise of boosting IDT's Internet telephony business, it's only a matter of time before long distance telephone companies offer competitive rates. 'Phone calls are going to go down to cost nothing,' said IDT spokesperson Sarah Hofstetter. 'The phone competition is heating up now, but it's going to get a helluva lot harder.' For now, IDT has an edge on long distance rates via Net2Phone since Internet-based calls are cheaper when transmitted over the global computer network versus voice networks. The Internet telephony leader hopes its spot on Netscape's new Communicator program, due out this summer, will increase its exposure and user base. 'It puts us in an entirely new league,' Hofstetter said. 'Right now we have 1.5 million users - Netscape has 50 million.' With a number of high-tech companies, including Bigfoot and Real Networks (NASDAQ: RNWK), locked in to promote the Net2Phone service, IDT believes people will soon realize its advantages. For one, using Net2Phone eliminates the need to get offline to make a call. 'The ultimate goal here is ubiquity -- we want to be an online phone company,' Hofstetter said. While the deal is similar to one that America Online (NYSE: AOL) forged with Netscape to feature AOL's Instant Messenger chat system, Instant Messenger's major advantage over Net2Phone is its compatibility with an average computer system. Net2Phone requires multimedia features which many PCs made even two or three years ago don't include. And chances that people are going to upgrade their systems just to accommodate Net2Phone's technology are slim. However, Netscape and other IDT partners lose little by offering users the PC-to-phone service. And while Net2Phone will gain exposure on Netscape, it might take some time before the technology catches on. 'It's a no-brainer for Netscape -- there's no risk for them at all,' Miller said. 'They're willing to take chances to serve end user.' Ultimately, PC-to-phone service could be the wave of telephony's future, but with wrinkles yet to be ironed out, it's unlikely that the technology will go mainstream any time soon. Networks are not yet reliable enough, and voice quality still needs work. 'The biggest detriment to PC-based internet telephony is that the quality of the call is dependent on the Internet service provider,' Hofstetter said. 'The call quality on the company's intranet is good (the vehicle used to channel domestic calls), but internationally the call quality is horrible,' Jefferies' Miller said, adding that he has never supported the PC-to-phone technology. As IDT focuses on marketing Net2Phone, it does little to change the fact that fundamentals are not improving for the company's core business, Miller said. Earlier this year the company lowered guidance for 1999 estimates, citing falling gross margins due to network deployment delays, pricing pressure in its core business segments, and increased spending to support growth of its IP telephony business. As a takeover candidate, IDT's Internet component might fare better if acquired by a larger entity. There has been talk of spinning off the company's Internet-related assets, but it's doubtful that it would produce a higher valuation. Bottom Line: While IDT's Net2Phone strategy continues to attract Internet alliances, its success will ultimately be measured in dollars and cents.