Updated from 10:10 a.m. EST

A group of telecommunications giants led by

AT&T

(T) - Get Report

said Friday that they would invest $1.4 billion in

Net2Phone

(NTOP)

, giving them a 39% stake in the company, in the industry's largest commitment to Internet-based telephone service.

Internet companies seeking to provide telephone service also rushed to Net2Phone Friday. Internet giant

Yahoo!

(YHOO)

said it has obtained a 5% stake in the company. And Yahoo!'s rival,

America Online

(AOL)

, is seeking to increase its stake, an official of

IDT

(IDTC)

, Net2Phone's controlling shareholder, disclosed in a conference call with analysts.

The industry group, which includes

British Telecommunications

(BTY)

and AT&T subsidiary

Liberty Media Group

TST Recommends

(LMG.A)

, will buy 14.9 million shares from long-distance company IDT for $75 a share, as well as four million newly issued shares also at $75 a share.

IDT's 25 million shares of the roughly 52 million outstanding class A shares comprised a 55% voting stake in Net2Phone, said Howard Balter, Net2Phone's chief executive. After the deal with the AT&T consortium, IDT will control 20% of the voting power.

Hackensack, N.J.-based Net2Phone was up 6 9/16, or 12%, at 62 3/8 Friday morning, while AT&T was down 3/8 or 1%, to 57 7/16. (Net2Phone closed up 4 1/16, or 7%, at 59 1/8, while AT&T closed down 1 1/2, or 3%, at 56 5/16).

New York-based AT&T said it will spend $725 million for a 51% stake in the consortium.

The announcement came four days after Liberty Media said it would buy a 9.9% stake in IDT for $130 million.

Business Week

magazine had reported AT&T was in talks to spend around $1 billion on a Net2Phone stake.

AT&T said in a statement that it expected the purchase to dilute earnings per share "minimally" and "for the next few years." Pressed for clarification, company officials suggested earnings per share would be diluted by "a cent or so per year" for "probably the next three or four" years.

Yahoo!, acting independently from the industry group, said it has purchased 2.8 million shares of Net2Phone in exchange for 806,000 shares of its own stock.

That deal, worth around $136.6 million based on Thursday's closing price, gave Yahoo! an approximate 5% stake in Net2Phone. But Yahoo! obtained its shares before the jump in Net2Phone's share price, exchanging a stock package now worth $136.6 million for a Net2Phone package worth $155.05 million based on Thursday's closing prices.

The Yahoo! purchase valued Net2Phone at around $48.79 a share. Yahoo! was down 1/4, at 169 1/2, Friday morning. (Yahoo! closed up 1 7/8, or 1%, at 171 3/8).

"I feel delirious," said Howard Jonas, IDT chief executive and chairman, speaking to analysts in a conference call Friday. "I feel like Roberto Benigni at the Oscars. I wish I was a dog so I could just jump into everybody's laps and lick their faces. I think this is the biggest day in telecommunications."

Asked whether he expected customers to substitute Internet phone calls for the conventional calls they would otherwise make,

C. Michael Armstrong

, AT&T's chairman, said, "We really don't see a mass substitution."

"There will be some transition in it of minutes, but it's not going to be a wholesale substitution of minutes," he added.

One analyst questioned whether the companies could guarantee quality service for calls transmitted over the Internet. Phone service on the Internet has been criticized for scratchy sound where voices echo as though they emanated from a tunnel.

"There's no doubt that any evolving technology has to have some speed bumps," said Jonas, the IDT chairman. Connecting phones to PCs may be more difficult than connecting the PCs to Internet protocols, he said.

Jonas said America Online, already a Net2Phone partner and investor, has asked to make an additional investment.

Displaying the characteristic aplomb that livened the conference call, Jonas said, "It's public information now." He paused, apparently listening to someone inaudible to conference call participants, then continued, "It's not public information? How could it not be public information? I'm saying it now. It's quasi-public information. It's just between the 150 of us."

America Online did not immediately return a call seeking comment.

Asked in an interview how the company will accommodate both AOL and Yahoo! as 5% stakeholders, Balter, the Net2Phone chief executive, said the company is "committed to embrace both of them."

"They'll use their specific brand offerings to take our technology and figure out how to market it," he said.