Net2Phone Reports Record Results For Fourth Quarter And Fiscal Year 2000
Continued Strong Margins In Retail, Enterprise And Carrier Voice-Over-IP Businesses
Quarterly Revenues of $24.9 million, EPS of ($0.29) excluding charges, 167 million minutes routed

Newark, NJ - October, 5, 2000 --- Net2Phone Inc. (NASDAQ: NTOP) today announced record results for the fourth quarter and fiscal year ended July 31, 2000, reflecting strong revenue increases, significant customer growth and continued high margins in its retail, enterprise and carrier voice-over-IP product offerings.

The successful year further solidifies Net2Phone's position as the definitive platform for voice traffic on the Internet and over all IP networks. The company has a strong foundation for continued growth of its voice-over-IP businesses and is now positioned to leverage its proprietary technology by securing lucrative high-margin agreements to license its proprietary software to traditional telephone companies through the formation of ADIR Technologies.

Net2Phone's fiscal year 2000 highlights include the following year-over-year growth:

• 118% increase in total revenues to $72.4 million from $33.3 million
• 108% increase in minutes of use to 476 million from 229 million
• 269% increase in users to 1.2 million from 325,000
• $450 million in investments from AT&T and Yahoo!
• Launch of Net2Phone's integration in Microsoft's MSN Messenger
• Widened distribution through initiatives in broadband, enterprise, Yap, and carrier

Revenues for the quarter were $24.9 million, an increase of 125 percent over revenues of $11.1 million in the same quarter last year and an increase of 32 percent over revenues of $18.9 million in the prior quarter. Revenues for the quarter exceeded analyst average expectations by 9 percent.

For the full fiscal year, revenues were $72.4 million, a 118 percent increase over revenues of $33.3 million last year.

Building the IP Telephony Company of the Future
Howard Balter, Chief Executive Officer of Net2Phone, said: "Our core expertise in voice-over-IP service and technology delivered strong progress over the last year and excellent fourth quarter results. Those results reflect a fast-moving company that is well-positioned for the continued growth of our major retail, enterprise and carrier businesses, as well as our rapid expansion into related and highly profitable areas, including voice recognition, voice messaging, and other services. Our powerful alliances with leading companies like Cisco, Microsoft, and AT&T demonstrate that we have successfully created the definitive services platform for Voice over IP."

Net loss for the quarter, excluding an acquisition and a one-time non-recurring charge of $27.8 million was ($15.9) million, or ($0.29) per share. Analysts had expected Net2Phone to post net losses per common share of ($0.30). The acquisition charge was related to the acquisition of Aplio, a leading technology integrator for Voice over IP completed in July. The one-time charge was associated with the termination by Net2Phone of certain marketing agreements with smaller web properties, which had been important in the company's initial stage of development as a way of promoting brand awareness and consumer acceptance of Net2Phone's retail services, but have since been rendered superfluous to Net2Phone's marketing plan.

Net2Phone's robust distribution channels, brand exposure and integration with leading mainstream Internet companies like Microsoft, America Online, and Yahoo! has allowed the company to move beyond these earlier agreements. The charge represents significantly lower financial and resource costs than would have been required to maintain them on a go-forward basis.

Key Developments

Minutes/Customers
Net2Phone minutes of use grew to 167 million, a 117% increase over 77 million minutes in the same quarter year ago and a 38% increase over last quarter. Net2Phone's retail active customer base, a key driver of the company's success today and in the future, reached 1.2 million by the close of the quarter and fiscal year, a 45% increase from last quarter, which does not include any customers that signed up through the Microsoft relationship.

Throughout its development, Net2Phone has proven its ability to scale to demand, as an increasing number of individuals and businesses have recognized the real benefits of voice-over-IP technology. A year ago, the company served 325,000 customers and routed 750,000 minutes per day. Now, Net2Phone serves more than 1,000,000 customers, and successfully routes more than 5,000,000 minutes per day.

Key Alliance With Microsoft Generates 100+ Million Minutes Since Inception in Late July
During the quarter, Net2Phone forged a key alliance with Microsoft to enable MSN Messenger users to make free domestic calls from a PC to a telephone. In just the first two months of this agreement, Net2Phone has routed more than 100 million minutes - already half the number of minutes the company routed throughout the entire fiscal year 1999 and more than the number of minutes routed just two quarters ago.

By offering MSN's users free U.S. PC to Phone, Net2Phone:

• Drives customer volume to support the up-sell and cross-sell of higher margin, advanced communications services
• Creates new revenue streams for the company
• Lowers customer acquisition costs, while offering the potential to dramatically increase the company's customer base

"We are thrilled with the consumer response to MSN Messenger 3.0," said Yusuf Mehdi, vice president of MSN at Microsoft Corp. "By working with Net2Phone, MSN Messenger 3.0 has made making free PC-to-phone calls to the U.S. and Canada easy and fun for millions of people. MSN Messenger 3.0 continues to provide the ultimate way to communicate with others by putting users in control of their communications, and Net2Phone is one of the key reasons MSN is having so much consumer success."

"We have demonstrated our ability to secure powerful relationships with established innovators like Microsoft and to be highly scalable," Mr. Balter commented. "While the voice-over-IP calls provisioned through our Microsoft partnership are free to the consumer, they establish Net2Phone's presence on a major Internet platform, giving us access to an entirely new population of tech-savvy consumers. We will certainly take advantage of this opportunity by offering these customers additional valuable services."

Devices, Broadband, and Enterprise
et2Phone continually diversifies its channels of delivering voice services to IP networks worldwide. To that end, this quarter, Net2Phone rolled out its Yap (Your Alternative Phone) product line in the U.S. with distribution channels throughout computer and electronics retailers around the country, including CompUSA, Office Max, and Micro Center. The devices are designed to make Internet calling even easier than before as well as drive Internet telephony minutes over Net2Phone's network. By using off-line distribution channels, Yap drives greater usage of Internet telephony by enticing the consumers at the point of PC purchase. In addition to Yap, many equipment vendors, including U.S. Robotics, Panasonic, and Samsung, have integrated Net2Phone's technology into their products, further driving Voice over IP minutes over Net2Phone's network.

Capitalizing on the opportunities in broadband, Net2Phone has taken the lead in offering second-line services to broadband providers and manufacturers using VoIP technology. This quarter, Net2Phone signed agreements with Scientific-Atlanta, Rhythms NetConnections, Polycom, and Flashcom, allowing end-user customers to enjoy a fully functional voice line over existing broadband connections at reduced costs with value-added services.

Net2Phone has also started an enterprise division, focused on offering a complete Voice over IP solution for large businesses around the globe. In its first three months of operation, Net2Phone has signed up 25 Fortune 500 companies to migrate traffic to Net2Phone's voice-optimized IP network from circuit-switched legacy networks, further validating Net2Phone's ability to offer high-quality scalable voice services to IP networks.

Margins
In the fourth quarter, Net2Phone continued to achieve healthy gross margins of more than 41% for its retail, enterprise and carrier voice-over-IP services. The company believes its current business initiatives will continue to generate strong growth and margins over the long term. These initiatives include Net2Phone's international expansion effort and the move to broaden its valued-added offerings to encompass new high-margin voice and video services, as well as software licensing agreements with major telecommunications companies through ADIR Technologies. Although the company expects some short-term pressure on margins as it rapidly expands the size of its retail business through strategic marketing agreements with companies like Microsoft and AOL/ICQ, this expansion will give Net2Phone access to several million new customers and enhance its role as an essential player in IP services worldwide.

ADIR
Technologies Last month, Net2Phone created ADIR Technologies, a separate company funded by both Net2Phone and Cisco Systems to focus on IP network management software. By creating ADIR, Net2Phone will commercialize its existing network management software it has exclusively had in place since 1995. ADIR gives Net2Phone a new high-margin line of business with minimal capital expenditure and without cannibalizing its existing services business. ADIR will market its products to service providers, telecommunications companies, as well as equipment manufacturers looking to migrate voice traffic to IP networks.

This relationship with Cisco Systems offers Net2Phone unparalleled access to companies who can best utilize ADIR's software offerings. Through the formation of ADIR, Net2Phone can continue to focus on its business of delivering IP voice services. Concurrently, it can create standards for Voice over IP by delivering the software that has led to Net2Phone's success in this space and applying it to IP networks worldwide. Net2Phone will consolidate ADIR earnings.

About Net2Phone
Net2Phone, Inc. is a leading provider of voice-enhanced Internet communications services to individuals and businesses worldwide. Net2Phone enables people to place low-cost high quality calls from their computer, telephone, or fax machine to any telephone or fax machine in the world. Net2Phone develops and markets technology and services for IP voice and e-commerce solutions for the web and other IP networks. Net2Phone's strategic investors include Softbank, America Online, GE/NBC, and Yahoo!. Additionally, AT&T has acquired a 39 percent voting stake in Net2Phone. For more information about Net2Phone's products and services, please visit www.net2phone.com.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, among other things, Net2Phone's expected operating performance for the three months ending October 31, 2000 and thereafter. Actual results could differ from those projected in any forward-looking statements due to numerous factors. Such factors include, among others, the inherent uncertainty of financial estimates and projections, the competitive environment for Internet telephony, changes of rates of all related telco rates and services, legislation that may affect the Internet telephony industry, and Net2Phone's ability to operate the services described on a large scale commercial level. The forward-looking statements are made as of the date of this press release, and Net2Phone assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth herein and the other information set forth from time to time in Net2Phone's reports filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.