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Prepared and filed by St Ives Burrups

[Net2Phone Letterhead]

May 16, 2005

VIA TELECOPIER AND ELECTRONIC TRANSMISSION

Larry M. Spirgel

Assistant Director

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549-0303

Mail Stop 0407

    Re:
    Net2Phone, Inc.

    Form 10-K for the fiscal year ended July 31, 2004

    Filed October 14, 2004

    Form 10-Q for
    the quarter ended October 31, 2004

    File No. 0-26763

Dear Mr. Spirgel:

     We are responding to what we believe is the one remaining open issue from your letter dated December 15, 2004 (the “Comment Letter”) and our letters to you in response dated January 14, 2005, March 16, 2005 and March 30, 2005 (the “Response Letters”) and several follow-up telephone calls, relating to the filings referenced above (the “Filings”).  For your convenience, we have repeated the Staff’s comment below prior to our response.

Form 10-K for the fiscal year ended July 31, 2004

Note 2 – Summary of Significant Accounting Policies

     Revenue Recognition

6.

We note that you recognize revenue from pre-payments for services after you conduct evaluations of outstanding, remaining pre-payment balances and determine, based on historical data, that such balances are not likely to be utilized.  Please clarify the nature of these services and tell us the terms of the agreement.  Tell us how you determine that it is appropriate to recognize revenue before you have no further obligations with respect to the pre-paid services.  Also, describe for us the amount and nature of the historical transactions which you use to support your accounting policy.

     We have addressed the questions outlined in the above comment #6 in the Response Letters.  You have asked for further information about the adjustments we have recorded to our deferred revenue liability over the past several years, and this response is designed to respond to this additional request for information.

     In many of the twelve fiscal quarters beginning with and including the quarter ended April 30, 2002, we recorded reductions in revenue as a result of quarterly reviews of our deferred revenue database and the related liability to reflect prepayments by customers.  During this time, management was not able to determine in which prior periods deferred revenue and revenue may have been misstated and by how much. In addition, management determined that each of the reductions in revenue was not material to the results of operations in the period in which it occurred.  Therefore, we recorded these adjustments in the then current quarters.

     During the period from Net2Phone’s inception through April 30, 2002, we calculated breakage revenue, which was based on historical information regarding the percentage of prepayments for which it was probable and estimable that the customer would not require service. It became apparent in the third quarter of fiscal 2002, however, that our deferred revenue liability did not adequately reflect our liability to provide service to our customers. We believed at that time that the understatement of deferred revenue was the result of the estimated breakage percentage applied in prior periods being too high. Accordingly, we recorded an adjustment to increase the deferred revenue balance by $5.0 million, with a
corresponding decrease to our revenue in the third quarter of fiscal 2002. We were unable to determine in which prior periods deferred revenue and revenue may have been misstated and by how much because there was no information available at the time to determine the proper estimate of breakage revenue by period that should have been applied in each of those prior periods to the amounts that were recorded through the inaccurate estimates.

     In that and each subsequent quarter, we have performed an analysis of our deferred revenue balance pursuant to our revenue recognition policy, the disclosure of which was updated to reflect this process in our fiscal 2002 Form 10-K and further updated in our second quarter fiscal 2005 Form 10-Q. These analyses often resulted in additional adjustments to the deferred revenue and revenue balances, which, when all of the quarterly adjustments are taken together, totaled $12.0 million over the period April 30, 2002 through January 31, 2005. However, we continue to have no methodology available to determine to which prior periods these adjustments may have related, nor could we determine the amount by which any given
prior period’s deferred revenue and revenue balances may have been misstated because there is no information available to determine the proper estimate of breakage revenue by period that should have been applied in each of those prior periods to the amounts that were recorded through the inaccurate estimates.

               We considered, with respect to both Net2Phone as a whole and its segments, whether the adjustments materially affected financial results in the periods in which they were recorded, whether the adjustments resulted in material changes in the trends of the results of our operations, and whether the effect of the adjustments warranted a restatement of any prior period. Accordingly, we quantified the impact of the adjustments through the attached Exhibits 1-12.

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     As discussed further below, we concluded that had the effect of these adjustments been recorded in earlier periods, the financial results of Net2Phone would not have been materially different from those presented in our Form 10-Ks and 10-Qs for each of the periods in which the adjustments were in fact recorded, that the trends in the results of our operations would not have materially changed (i.e., a net loss would not have been changed to net income, and vice versa), and, accordingly, a restatement to an earlier period was not required.

     We further concluded that even if a restatement to an earlier period might have been warranted, it would not be possible with any meaningful degree of precision due to the lack of information to determine which earlier period or periods prior to April 30, 2002 should be restated and by what amount.

Revenue

     As
    reflected in Exhibit 1, the amounts of the adjustments in revenue were compared
    to the total revenue that was reported in each of the respective periods. It is our conclusion that
    in all cases the amount of the adjustment is not sufficiently material to
    require restatement to a prior period. With respect to the two adjustments
    with the largest impact on revenue, the $5.0 million adjustment
    in the quarter ended April 30, 2002 (16.4% of revenue as reported) did not
    have any impact on revenue trends, as discussed below, nor was it material
    to net loss for that quarter (3.6%) or the year ended July 31, 2002 (2.0%).
    The adjustment of $2.0 million in the quarter ended January 31, 2005 (11.0%
    of revenue as reported) was material to net loss for the quarter (18.6%),
    but is not expected to be material to our results for the fiscal year ending
    July 31, 2005. Therefore, in accordance with paragraph 38 of APB 20, the
    second quarter fiscal 2005 adjustment was fully disclosed and discussed in
    the Form 10-Q for that quarter.

     With respect to revenue trends, as reflected in Exhibit 2, revenue that would have been reported in a given period had the adjustment not been recorded in that period was compared to revenue in the corresponding year earlier period that would have been reported had the adjustment in that year not been recorded. The percentage change from year to year was calculated and compared to the percentage change in the year to year revenue as reported in the respective Form 10-Qs and 10-Ks.  In all cases but four, the direction of change would have been the same. In the four instances where it would not have been, the difference did not change the trend results for that full fiscal year (the trend for the six months ended
January 31, 2005 did change, and as discussed above disclosure of the adjustment was provided in the second quarter Form 10-Q). Specifically, in the fourth quarter of fiscal 2004 compared with the fourth quarter of fiscal 2003, the adjustment changed the trend from a decrease in revenue (5.9%) to a modest increase (0.7%). However, it did not change the trend from the immediately preceding quarter, nor did it change the trend for the full fiscal year. Similarly, the trend from the first quarter of fiscal 2004 to the first quarter of fiscal 2005 changed very slightly as the result of the adjustments. Without the adjustments, revenue remained flat ($20.6 million in both periods). Factoring in the adjustments, revenue declined slightly from $20.4 million to $20.3 million. We do not believe
such a change was material to investors. In the other instances, the quarter and six months ended January 31, 2005, the adjustment was fully disclosed and discussed in the Form 10-Q for that period.

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     We also examined the trend relating to the results in a quarter as related to the immediately preceding quarter. In every period, the direction of change in revenue, either increase or decrease, was the same whether it was looked at on an as reported basis or on the basis of what revenue would have been had the adjustment not been recorded.

     We therefore concluded that in considering both materiality of the adjustment in the reporting period and any effect the adjustment might have had on trends, an investor would not have been likely to reach a different conclusion regarding an evaluation of Net2Phone because of the effect of the adjustments to revenue.

     In
    terms of segment information, the adjustments to revenue relate solely to
    the operations of our Net2Phone Global Services, or NGS, segment and have
    no relevance to our Net2Phone Cable Telephony, or NCT, segment. In addition,
    quarterly results by segment were first reported in the Form 10-Q for the
    period ended October 31, 2003. Prior to that date, investors would not have
    had segment information available to them. As reflected in Exhibit 3, for
	all periods in which segment results were reported on a quarterly basis,
	the adjustments were not material to reported revenue. For the quarter ended
	January 31, 2005, full disclosure and discussion of the adjustment was
	provided in the Form 10-Q for that period. In addition, as reflected
	in Exhibit 4, the
    adjustments did not adversely impact revenue trends within the segment. The
    trend relating to revenue in a quarter as related to the immediately preceding
    quarter indicates that in every period the direction of change in revenue
    was the same whether it was looked at on an as reported basis or on the basis
    of what revenue would have been had the adjustment not been recorded. In
    addition, with the exception of the fourth quarter of fiscal 2004 compared
    with the fourth quarter of fiscal 2003, the trends in revenue for each quarter
    and year to date period that would have been reported had the adjustments
    not been recorded, when compared to the year earlier period on the same basis,
    reflect the same trend. With respect to the fourth quarter of fiscal 2004
    compared with the fourth quarter of fiscal 2003, the adjustment changed the
    trend from a decrease in revenue (6.1%) to a modest increase (0.6%). However,
    as previously mentioned it did not change the trend from the immediately
    preceding quarter, nor did it change the trend for the full fiscal year.

Income (loss) from operations

     Since
    the adjustments to revenue are the result of changes to the deferred revenue
    account, there are no corresponding adjustments to direct cost of revenue
    or other expense accounts. As a result, the changes in revenue affect, dollar
    for dollar, income (loss) from operations, net income (loss) and other measurements
    of results of operations. As reflected in Exhibit 5, the amounts of the adjustments
    in revenue were compared to the total income (loss) from operations as
	reported. It is our conclusion that in all cases the amount of the adjustment
    is not sufficiently material to require restatement to a prior period. With
    respect to the 39.2% impact on the full year of fiscal 2003, which while
    on its face is material, we note that no one quarter in the year was affected
    to such a degree and that if not for the significant gain of $58.0 million
    resulting from the non-recurring settlement of Cisco litigation in the first
    quarter of fiscal 2003, the adjustments in that year would have been only
    7.7% of the loss that would have been reported. In addition, as pointed out
    below, the trend for the full year of fiscal 2003 did not change. With respect
    to the 18.6% impact in the quarter ended January 31, 2005, as previously
    noted, that adjustment was fully disclosed and discussed in the Form 10-Q
    for that period.

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     With respect to trends, as reflected in Exhibit 6, income (loss) from operations that would have been reported in a given period had the adjustment not been recorded in that period was compared to income (loss) from operations in the corresponding year earlier period that would have been reported had the adjustment in that year not been recorded. The percentage change from year to year was calculated and compared to the percentage change in the year to year income (loss) from operations as reported in the respective Form 10-Qs and 10-Ks.  In all cases but one, the direction of change was the same. In the one case that period, the six months ended January 31, 2005, the change in direction was small and the significant
adjustment for that period was disclosed and discussed in the Form 10-Q for that period.

     We also examined the trend relating to the results in a quarter as related to the immediately preceding quarter. In every period but one the direction of change in income (loss) from operations, either increase or decrease, was the same whether it was looked at on an as reported basis or on the basis of what revenue would have been had the adjustment not been recorded.  In the one case that period, the quarter ended January 31, 2005, the change in direction was small and the significant adjustment for that period was disclosed and discussed in the Form 10-Q for that period.

     We therefore concluded that in considering both materiality of the adjustment in the reporting period and any effect the adjustment might have had on trends, an investor would not have been likely to reach a different conclusion regarding an evaluation of Net2Phone because of the effect of the adjustments on income (loss) from operations. In addition, management does not place emphasis on our income (loss) from operations in our quarterly earnings release, nor does management believe investors and analysts place emphasis on income (loss) from operations.

Net Income (Loss)

     As
    reflected in Exhibit 7, the amounts of the adjustments were compared to the
    total reported net income (loss) in each period. It is our conclusion that in
    all cases the amount of the adjustment is not sufficiently material to require
    restatement to a prior period. With respect to the 22.2% impact on the full
    year of fiscal 2003, which while on its face is material, we note that if
    not for the significant gain of $58.0 million resulting from the non-recurring
    settlement of Cisco litigation in the first quarter of fiscal 2003, the effect
    of the adjustments on that year would only have been 9.1%. Although the 13.7%
    impact of the adjustment in the fourth quarter of fiscal 2003 was significant,
    as pointed out below, the trends during this period did not change as a result
    of the adjustment. With respect to the 18.6% impact in the quarter ended
    January 31, 2005, as previously noted, that adjustment was f