Time Warner Reduces Stake in Net2Phone

Updated: According to a filing with the SEC, America Online's parent company has purchased 1.5 million shares in the VOIP pioneer. However, sources say this is not a new investment.

Time Warner Inc., the parent company of America Online Inc., has snapped up approximately 1.5 million shares of Net2Phone, which amounts to a 3.1 percent stake in the company, according to a filing with the Securities and Exchange Commission.

The move comes just two weeks after AOL announced plans for a voice-over-IP rollout in Canada and appears to signal an aggressive push by the ISP to launch VOIP services in the United States to compete directly with the Baby Bells and private companies such as Vonage Holdings Corp., 8x8 Inc. and VoicePlus Inc.

However, according to a source familiar with Time Warners ownership stake in Net2Phone, the SEC filing does not represent a new investment. The SEC document, dated December 7 and filed on December 22, is simply a notice that Time Warner is reducing its stake to below 5 percent, the source explained.

When Net2Phone was spun off from IDT Corp. and went public in July 1999, AOL purchased a 6.5 percent stake in the company. The latest filing in effect amounts to a stake reduction, the source said.


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The filing raised eyebrows because it comes just weeks after AOL Canada outlined plans to offer an Internet phone package to residents of Toronto this month and to the rest of the country by the end of March. Now, with a slice of Net2Phone in its pocket, it is likely AOL will seek to expand its VOIP plans to the U.S. market.

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Newark, N.J.-based Net2Phone was once a high flyer in the VOIP market, racking up billion-dollar investments and partnerships with the likes of AT&T Corp., Yahoo Inc. and Cisco Systems Inc., but the dot-com fallout hit the company hard and forced an overhaul of the companys business model.

Net2Phone shifted the focus away from the consumer market and scored deals with cable providers in Puerto Rico and the Caribbean to power add-on VOIP services.

Last month, the company released a Wi-Fi handset for its VoiceLine IP telephony service. Based on SIP (Session Initiation Protocol), the phone complies with both the 802.11b and 802.11g standards for wireless LANs, and advances the growing trend in VOIP mobility.

The company is also in the midst of an ownership shakeup. Earlier this week, Liberty Media Corp. said it would exchange its Net2Phone holdings for shares in IDT Corp., Net2Phones majority owner. The transaction is valued in the range of $56 million.

Editors Note: This story has been updated to clarify AOLs ownership stake in Net2Phone.


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