Will Pacific Gateway Raise Its Much-Needed Cash on Time?

Also, more on -- say it ain't so! -- Net2Phone. (See why I'm a glutton for punishment.)
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Fried-Day, and I stress the "fried" part:

Money watch:

Pacific Gateway Exchange

(PGEX)

, a Burlingame, Calif.-based telecommunications company, disclosed in its recent 10-Q that a letter of intent to receive $200 million (from

Salomon Brothers

and

Goldman Sachs

) had lapsed without getting a firm commitment. The money was crucial to cover the company's own $160 mil in commitments for fiber cable required for a transoceanic line.

What happened, and where is Pacific Gateway going to get the money? CEO Howard Neckowitz told me that it was Pacific Gateway's choice not to accept the money. He adds the company is in the process of securing alternative forms of financing either through the high-yield market or something else. He wouldn't elaborate, and wouldn't say who he's talking to. "Everything is on track," he says.

It had better be. "Without it," Jefferies analyst Greg Miller says, "it's going to be really tough for them to pull off the execution of its strategy," which includes creating transoceanic telecommunications lines that compete with the likes of

Global Crossing

(GBLX)

.

The last company to try that,

Telegroup

(TGRPQ)

, also thought it had access to cash but never got it; earlier this year it filed for bankruptcy reorganization.

Net2Phonaholics:

Oh, the Hostile React-O-Meter was spinning on this one; spinning outa control, I tell ya. But all you really need to know about what and who was behind the more-than-meteoric rise in

Net2Phone

(NTOP)

is laid out, as clearly as can be, in this email from reader

Richard Casanas

.

"No one cares about what your (sic) saying. They just need an excuse to daytrade the stock. I made 10k on NTOP today...in less than 2hrs. How much did TSCM pay you to write the story...Maybe, $250. 10,000-250=9,750."

At least I don't have to worry about finding a chair when the music stops, which is the great risk for daytraders, especially those who play in stocks like Net2Phone or any stock -- yes, even

TheStreet.com

(TSCM)

-- that rises that quickly.

Net2Phone, of course, is being billed as an Internet story. But 29% of its biz comes from phone-to-phone calls, some of which are actually over good old-fashioned telephone lines. The company discloses in its prospectus: "All of the telephone calls made by our customers are connected through local telephone companies and, at least in part, through leased networks."

What's more, the cost savings of Internet phone calls, from all competitors, isn't necessarily all they're cracked up to be.

"Considering the inferior sound quality of Internet-carried voice conversations, and the potential disruptions of faxes by Internet delays, it is astonishing that these services continue to attract so much attention," says an article in the August issue of

Business Communications Review

, a respected telecommunications trade publication.

The publication compared 22 Internet phone service providers (including Net2Phone's) with

Sprint's

(FON)

Sprint Sense 10-cent-per-minute rate for a non-Internet call. What bargains it did find, aside from calls to developing countries, were modest, at best. (Net2Phone, since you're all so interested, was less than Sprint in this sampling on calls from the U.S. to Japan and Germany, but not to India or from state to state in the U.S.)

And speaking of Sprint: Lots of chatter about Net2Phone's recently announced deal for Sprint to test its service for use in Asia. (Hey, folks, it's just a test.) And

Compaq

(CPQ)

is loading Net2Phone on Compaq computers. (Doesn't mean everybody who buys a Compaq will use it; I never did use that phone or the long-distance service that came installed on my PC -- even though it was integrated into the keyboard.)

All this talk of Net2Phone reminds me of

Talk.com

(TALK)

(nee Tel-Save). Its stock soared on an exclusive arrangement to sell super-cheap long-distance service over

America Online

(AOL)

. The company bragged about how it was smarter than everybody else and how it would change the world. Oh, it changed the world, all right. Everybody else matched its rates. The rest, as they say, is history.

The Fox files: Don't forget to catch me, JJC, GBS, Lashinsky and Kansas (odd man out) on "TheStreet.com" on Fox News Channel this Saturday at 10 a.m. EDT, with a repeat Sunday at 1 p.m. Let's see what crumpled up piece of research JJC pulls out of his pocket this time.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.