Web telephone company Net2Phone, Inc. on Thursday announced a deal to interconnect its IP network with AT&T's circuit-switched network, a pact that involves AT&T paying on a per-minute basis.

In its announcement, Net2Phone described the telco simply as a "major telecommunications carrier" but people familiar with the deal said AT&T had agreed to buy network time to route telephone calls over Net2Phone's IP-based network. Financial terms were not released.

For the New Jersey-based Net2Phone, the AT&T pact adds badly-needed revenue to its coffers and lends legitimacy to its business model of selling telecommunications minutes via IP networks. Its the first domestic deal of its kind for Net2Phone.

With its stock price lagging at $4.98 per share this morning, right around the 52-week low, the deal could not come at a better time.

Slowing revenues and widening quarterly losses forced Net2Phone majority owner IDT Corp. to take complete control of the company's operations, with long-term plans to put the company's technology on cable modems worldwide.

It's also no surprise that AT&T has locked arms with Net2Phone. The company has already invested close to $1.5 billion dollars into Net2Phone and insiders say the latest deal will help AT&T avoid paying access fees to local phone service providers.

Sources estimate AT&T pays close to $10 billion a year to terminate calls to local phone companies. "With Net2Phone, AT&T basically gets that termination fee to disappear," one industry source said.

While the quality of Vo-IP Web phone services has been criticized, AT&T and other big-name telcos have embraced the concept of connecting traditional circuits with the Web-based networks. Net2Phone already has similar deals with France Telecom, Eircom Ireland and about 15 international telcos.

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The AT&T/Net2Phone comes one day after the long-distance powerhouse announced it would team up with British Telecommunications to invest approximately $2 billion to like Internet data centers internationally. The companies said data centers in 16 countries would be linked up to host Web sites and provide add-on Internet services.

Net2Phone, which was spun off from IDT in 1995, sells voice services via IP-networks consumers, businesses and carriers worldwide. Partners and investors also include Liberty Media Corp. , AOL Time Warner.