ICQ, Net2Phone in Global Internet Telephony Pact

Next year the users of ICQ Inc.'s online chat service will be offered new client software that supports Internet telephony, as part of a four-year deal announced today between ICQ and Internet telephony provider Net2Phone Inc.

ICQ, owned since June 1998 by America Online Inc., today has 38 million users of its instant-messaging and real-time chat services.

ICQ is the dominant player in this market, but is facing increasing competition from several players, such as the popular search site and portal Yahoo Inc. with its Yahoo pager. Also, analysts expect Microsoft Corp. to debut its long-announced MSN Messenger shortly. Seattle-based Microsoft already has a community of 40 million using its free e-mail service Hotmail.

The Net2Phone deal gives ICQ users cheaper ways of making phone calls, either PC-to-PC, phone-to-PC or PC-to-phone. It is to ICQ's competitive benefit, although loyalty on the Internet is "fleeting," according to Dwight Davis, a Seattle-based analyst at market-research firm Summit Strategies Inc.

But although Microsoft is "a pretty tough competitor," ICQ stands a good chance of continuing as a major player. The Internet has proven itself as a more competitive market than Microsoft's traditional markets, and the software giant has experienced that several times, Davis said.

For Net2Phone the deal means access to yet another large market. In March Net2Phone announced a deal with Netscape Communications Corp., which will include the telephony software in the next version of the browser client.

Net2Phone, owned by IDT Corp. (also an IP telephony provider), today has more than 1 million customers and routes about 20 million minutes of calls a month, according to written statements. The company does not want to comment on the ICQ deal because of its pending initial public offering.

The deal also includes a plan whereby ICQ this fall will be offering its users an Internet telephony calling card. The ICQ-branded card can be used for phone-to-phone calls via the Internet.

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