NEWARK, NJ - March 19, 2001 - Net2Phone Inc. (NASDAQ: NTOP), the leading provider of voice and enhanced services on IP networks, today reported revenues totaling $34.7 million for the second quarter fiscal year 2001 ended January 31, 2001, a 124% increase over revenues of $15.5 million for the second quarter FY2000 and a 12% increase over the prior quarter revenues of $30.8 million.

Net loss excluding charges and free minutes for the second quarter of FY2001 was ($15.9) million or ($0.27) per share. Net loss before charges for the quarter including free minutes was ($23.9) million or ($0.41) per share, as compared to a net loss of ($8.7) million or ($0.17) per share for the second quarter of fiscal 2000 and ($14.7) million or ($0.25) per share in the first quarter of fiscal 2001. Net loss for the quarter including gains, charges and free minutes was ($176.2) million or ($2.99) per share, primarily attributed to a write-down in the value of its Yahoo! shares, which were received in exchange for Net2Phone shares last March.

"Strategically, the second quarter was an important milestone on our path to profitability and sustained strong growth," said Howie Balter, CEO of Net2Phone. "We began to see substantial diversification and expansion of our revenue stream from consumer, enterprise and carrier services. This trend, we believe, will continue and be strengthened by the upcoming introduction of our voice-enabled high-margin services. Further, we took a significant step to reduce our costs by successfully renegotiating and restructuring agreements with key business partners in order to reduce our cost of subsidizing traffic to our partners. This, we expect, will result in higher gross margins and lower direct costs for Net2Phone over time. We will continue to evaluate all partner relationships, maintaining only those with positive financial returns."

"As we move ahead, the focus of our strategy is to emphasize a diverse revenue base, high margins services and a streamlined cost structure. Given our substantial progress in this quarter, we continue to project strong revenue growth, reduced expenditures and improved margins. As a result, we have accelerated by two quarters our forecast of when we will achieve profitability and now believe Net2Phone will reach that goal at the end of July next year," Mr. Balter added.

Gross margins in the quarter were 47%, excluding free minutes. Including free minutes (primarily though relationships with strategic partners), gross margins for the quarter were 25%, as compared to 39% in the prior quarter and 46% in the same quarter year-ago. Depreciation and amortization for the second quarter was $6.6 million as a result of the company's commitment to global IP network expansion. Depreciation was $5.7 million in the prior quarter, and $1.1 million for the same quarter year-ago.

Cash, cash equivalents and marketable securities as of January 31, 2001 were approximately $353.5 million. In the last quarter, approximately $35.8 million was used for the company's stock buyback plan, approximately $27.6 million for capital expenditures, and additional adjustments were made due to fluctuations in investments and public securities such as Yahoo!. Last March, Net2Phone and Yahoo! exchanged equivalent values of stock, with Net2Phone receiving approximately 800,000 shares of Yahoo! stock in exchange for approximately 2.8 million of restricted Net2Phone public shares.

DIVERSIFIED SOURCES OF REVENUE GROWTH
Total Net2Phone paid minutes of use grew to 296 million minutes for the quarter, a 187% increase over 103 million minutes for the same quarter year-ago and a 38% increase over the prior quarter's 214 million minutes. Net2Phone's PC-based services are now integrated into the top four Instant Messaging clients, proving Net2Phone's ability to scale to demand.

Consumer: Demand for Net2Phone's consumer services continued to grow. As of January 31, 2001, Net2Phone had over 2.8 million active users (not including customers using Net2Phone via MSN Messenger or Yahoo! Messenger services) who had used Net2Phone's services during the past three months, a 387% increase over 575,000 customers in the same quarter year-ago and a 56% increase over the prior quarter's 1.8 million.

Enterprise: Net2Phone's corporate account list continues to grow as well. More businesses are plugging Net2Phone gateways into their corporate environments allowing for direct dial Voice over IP calling from a PBX, making the calls seamless to the end user. Net2Phone's enterprise solution offers a compelling value proposition, both reducing per minute costs as well as offering enhanced functionality.

Broadband: This quarter, the company made strides in the broadband field, signing integration deals with Motorola, Broadcom, and Linksys, creating a new category of paying Voice over IP customers. Under these agreements, Net2Phone's protocols will be embedded into broadband devices such as home networking routers and cable modems, enabling instant IP dialtone over a broadband connection. Linksys started shipping their new Etherfast Cable/DSL Router Powered by Net2Phone this month.

Net2Phone plans to launch a new service plan that includes both inbound calling and monthly subscription billing. Net2Phone will assign phone number to users so that users can receive inbound calls as well as make phone calls using their existing broadband connection. The company expects to launch this service in beta form in the coming months.

Enhanced Voice-Enabled IP Services: Net2Phone is leveraging its existing technology, network and customers to bring enhanced services such as speech recognition and voice hosting to the marketplace. Using its consumer base as a showcase, the company plans to unveil new services such as a personalized voice dialer and a voice portal over the next two fiscal quarters. The company plans to offer such services to enterprises, call centers, and commerce companies as a method to reduce infrastructure, labor, and transit costs by approximately 40%.

ADIR Technologies: The company expects to close its second round of financing for ADIR, raising approximately $20-30 million, at twice the valuation of its initial round, completed only a few months ago. After the round is closed, ADIR will be valued in excess of Net2Phone's enterprise value. As previously forecasted, ADIR plans to roll out trial products by the middle of calendar year 2001.

RENEGOTIATIONS OF PARTNERSHIP AGREEMENTS TO REDUCE COSTS
Net2Phone believes it can significantly reduce costs and stay focused on its path to profitability, and has been working closely with its strategic partners to drive profitability through joint product offerings, and if necessary, restructure some agreements in order to ensure high returns on investment. The company intends to continue to evaluate its relationships with all strategic partners by the end of the fiscal year ending in July, carrying only those relationships with positive returns into fiscal 2002.

As was forecasted on our last earnings conference call, Net2Phone has restructured its existing agreement with Yahoo!, as part of its initiative to expedite its path to profitability.

Under the revised agreement, Yahoo! will purchase IP-based voice and enhanced services from Net2Phone to be used for multiple product lines, including its instant messaging service and voice portal (1-800-MY-YAHOO). The original agreement involved Net2Phone paying Yahoo! for category exclusivity for PC-to-phone, calling cards and 1-800-MY-YAHOO as well as an extensive marketing and promotional campaign for Net2Phone's consumer offerings over a three-year period.

As part of the restructuring, Net2Phone has taken a $31 million one-time non-recurring charge and has eliminated all future payment obligations to Yahoo!. The charge represents significantly lower financial and resource costs than would have been required to maintain the original relationship on a go-forward basis. The new agreement with Yahoo! calls for Net2Phone to provide these services in addition to other enhanced telephony services to Yahoo!.

The unexpected huge early success of Microsoft and Yahoo!'s integration into their Instant Messaging applications has resulted in the subsidization of approximately $8 million in free calling this quarter. Based on renegotiations with our strategic partners, we expect to reduce the offering of free minutes significantly, resulting in higher gross margins and reduced direct costs. Net2Phone has also restructured its agreement with Microsoft, whereby Microsoft has imposed a five-minute limit on domestic PC-to-phone calling.

As part of the company's outlined path to profitability, Net2Phone has charted the trends of free services in its Statement of Operations below.

"As we've stated previously, our focus is achieving profitability. By renegotiating our relationships with Yahoo!, Microsoft and others, we can get to profitability faster, which is in both the company's interest as well as the interests of our shareholders," said Ilan Slasky, Chief Financial Officer of Net2Phone. "We anticipate realizing significant operating leverage as we continue to scale our business for the needs of consumers, enterprises and telcos worldwide. We are outlining the following guidance through fiscal 2002."

• The company has accelerated guidance for profitability by two quarters, with expected profitability at July 31, 2002.
• The company expects annual revenues slightly in excess of $150 million for fiscal year ending July 31 2001, in line with previous guidance. The company expects to continue to grow revenues by approximately 50% in fiscal year 2002.
• Gross margins are expected to rebound significantly, trending towards 30-35% over the next three quarters as the company reduces and/or eliminates free services. For the remaining three quarters of fiscal 2002, the company expects gross margins in the range of 35-38%.
• Sales and marketing expenses are projected to decline 10-15% each quarter for the next two quarters. For fiscal 2002, the company expects sales and marketing to decline significantly as a percentage of revenue.
• G&A is expected to decline approximately 10% each quarter for the next two quarters. For fiscal 2002, the company expects G&A, as a percentage of revenue, to decline significantly as the company expects greater operating leverage.
• Interest income is projected to be approximately $3.5 million, in the next quarter and is expected to be approximately $7 million over the next 12 months.
• CapEx is expected to be approximately $25-30 million each quarter for the next two quarters, depending on the timing of the purchase of certain network expenditures, after which we expect it to be approximately $15-20 million per quarter.

UPDATE ON AT&T
Net2Phone and AT&T continue to discuss ways to deepen and strengthen their relationship, which may include utilizing Net2Phone's proven infrastructure, platform and ability to route calls over AT&T's IP network.

ABOUT NET2PHONE
Net2Phone, Inc delivers voice and enhanced services to IP networks 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 January 31, 2001 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.

Net2Phone, Inc. Comparative Statement of Operations
For The Three Months Ended October 31, 2000 & 1999, and July 31, 2000