'

Net2Phone's strategy: diversification or desperation?

In the IP telephony space, change is not measured in "dog years." It should be measured in "hamster years.

In the IP telephony space, change is not measured in "dog years." It should be measured in "hamster years."

Take Net2Phone, for instance. When the IP telephony pioneer was founded in 1996, making a phone call over the Internet was seen as an exercise in hope that you, the caller, would be understood at the other end. Unlike today's bradband-connected, router-directedVoIP, call quality wasnot of high quality.

To be fair, phone quality on Net2Phone calls is infinitely better than before. Yet I am not entirely convinced that some prospective customers do not look at the company as kind of a legacyoperation outglitzed by the hundreds of born-ready (as opposed to upgrading) VOIP providers that have arisen in the nearly nine years since Net2Phone was launched.

Just before Christmas, Time Warner decreased its holdings in Net2Phone from its original 6.5 percent share it held when the company went public in July 1999, to a 3.1 stake.

The stake reduction on the part of a major cable carrier such as Time Warneralso falls a bit short of a(pun intended), ringing vote of confidence.That's especially true, considering that Net2Phone has placed much of its future in selling VoIP solutions to cable companies. And Time Warner Cable has 3.5 million broadband subscribers.

Over time, Net2Phone has morphed from a pure consumer play to one that places emphasis on providing hosted VoIPservices that would be soldby cable providers.

Net2Phone is still somewhat of a player in the consumer space, though.Last month, it released a SIP-based Wi-Fi handset for its VoiceLine IP telephony service.

So Net2Phone is playing both the carrier and consumer business. I could make an argument that this strategy is one of flexibility andnimbleness. But are these offerings a proactive strike against newer competitors, or a move to right a ship that lost $11.2 million in the most recent fiscal year?