VoIP firm Net2Phone starts franchise effort

Internet-phoning company Net2Phone has raised $63 million to bankroll a franchise program designed to make it easy for cable service providers to offer VoIP plans, the company said Tuesday.

Under Net2Phone's recently introduced franchising deals, the company pays for nearly everything

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its cable service provider customers need to sell voice over Internet Protocol (VoIP) dialing plans. As a result of Net2Phone's financial risk, it keeps more than 90 percent of the generated revenue.

The $63 million raised through a recent stock offering "is quite enough to fund a lot of these deals," Net2Phone Vice President Sarah Hofstetter said.

At the heart of Net2Phone's service is VoIP, a cheaper telephone method that bypasses traditional phone networks and relies instead on IP, the world's most popular method for sending data from one computer to another. After years of overpromising and underdelivering, VoIP is generating significant interest among telecommunications carriers, corporations and consumers, thanks to improvements in quality.

Net2Phone's success could prove pivotal in making VoIP services available from scores more cable operators, many of which are struggling for financial footing after years of economic slowdown. For the most part, cash-strapped providers can't afford the huge initial cost of getting into the VoIP business, according to analysts. Those that have the means are building their own networks. Others, like Puerto Rico-based Liberty Cablevision, use a "hosted" version of Net2Phone that requires it to provide 80 percent of the needed network upgrades. As a result, however, Liberty Cablevision keeps most of the revenues generated.

St. Louis-based Cebridge Connections is negotiating to become Net2Phone's first franchise. Cebridge spokesman Pete Abel said that although there were other reasons for choosing Net2Phone, the franchise model played a big part. "The way they wanted to do business was very high on the list" of deciding factors, he said. Abel stressed that the deal is still being negotiated.

The public offering is the second multimillion-dollar funding round announced by a VoIP provider. On Monday, Vonage said it will use a $35 million cash infusion to fund a European expansion planned for next year.