This Quarterly Report on Form 10-Q, including without limitation Management's Discussion and Analysis of Financial Condition and Results of Operations, contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend the forward-looking statements to be covered by the safe harbor for forward-looking statements in such sections of the Exchange Act. These forward-looking statements include, without limitation, anticipated revenue, earnings per share, capital expenditures, market opportunity and market size, strategies, strategic relationships, competition, expected activities, and investments as we pursue our business plan, and the adequacy of our available cash resources. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. The forward-looking information is based on various factors and was derived using numerous assumptions.

There are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including those set forth in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2007 and in Part II, Item 1A "Risk Factors" of our Quarterly Reports on Form 10-Q. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Transaction with KPN B.V., a subsidiary of Royal KPN N.V.

On October 1, 2007, iBasis, Inc. ("iBasis," the "Company", "we" or "our") and KPN B.V. ("KPN"), a subsidiary of Royal KPN N.V. ("Royal KPN"), completed transactions ("KPN Transaction") pursuant to which iBasis issued 40,121,074 shares of its common stock to KPN and acquired the outstanding shares of two subsidiaries of KPN ("KPN GCS"), which encompassed KPN's international wholesale voice business. The Company also received $55 million in cash from KPN, subject to post-closing adjustments based on the working capital and debt of iBasis and KPN GCS. Immediately after issuance on October 1, 2007, the shares of iBasis common stock issued to KPN represented 51% of the issued and outstanding shares of iBasis common stock on a fully-diluted basis (which includes all of the issued and outstanding common stock and the common stock underlying outstanding "in-the-money" stock options, as adjusted, and warrants to purchase common stock).

On October 8, 2007, iBasis paid a dividend in the aggregate amount of $113 million at a rate of $3.28 per share to each of its shareholders on the record date of September 28, 2007, the trading date immediately prior to the closing date of the KPN Transaction. In addition, holders of outstanding warrants to purchase our common stock will be entitled to receive a cash payment upon the future exercise of these warrants in an amount equal to the dividend amount that would have been payable if the warrants had been exercised immediately prior to the record date of the dividend. As of September 30, 2008, iBasis had warrants outstanding to purchase approximately 432,000 shares of its common stock. In connection with the payment of the dividend to shareholders, we also increased the number of shares subject to unexercised stock options and decreased the exercise price of these stock option grants to preserve their value.

The officers of iBasis immediately prior to the closing of the KPN Transaction have continued to serve as the officers of the combined company and one executive of KPN GCS, Mr. Edwin Van Ierland, was appointed as the Company's Senior Vice President Worldwide Sales. Upon closing of the KPN Transaction, Messrs. Charles Skibo and David Lee, two independent members of iBasis' board of directors, resigned as members of the board of directors and the board of directors of iBasis appointed

Messrs. Eelco Blok and Joost Farwerck, two executives of Royal KPN N.V., as directors to fill the vacancies created by the resignations of Messrs. Skibo and Lee.

Although iBasis acquired all of the outstanding capital stock of KPN GCS, after the closing of the transaction, KPN holds a majority of the outstanding common stock of iBasis and KPN' designees are expected to represent, at a future date, a majority of the Company's board of directors. Accordingly, for accounting and financial statement purposes, the KPN Transaction has been treated as a reverse acquisition of iBasis by KPN GCS under the purchase method of accounting and the financial results of KPN GCS have become the historical financial results of the combined company and replace the historical financial results of iBasis as a stand-alone company. Thus, the financial results for the three and nine months ended September 30, 2007 include only the results of KPN GCS.

Prior to October 1, 2007, KPN GCS operated as an integrated part of KPN since inception and the historical financial statements of KPN GCS have been derived from the accounting records of KPN using the historical basis of assets and liabilities. Because KPN GCS did not operate as a stand-alone business the historical financial statements may not necessarily be representative of amounts that would have been reflected in the financial statements presented had KPN GCS operated independently of KPN.

KPN GCS benefited from certain related party revenue and purchase agreements with KPN that included sales prices per minute and costs per minute. KPN GCS also relied on KPN for a substantial part of its operational and administrative support, for which it was allocated costs primarily consisting of selling, general and administrative expenses, such as costs for centralized research, legal, human resources, payroll, accounting, employee benefits, real estate, insurance, information technology, telecommunications, treasury and other corporate and infrastructure costs. In anticipation of the closing of the transaction with iBasis, KPN GCS entered into a Framework Services Agreement with KPN in 2006, which replaced the related party revenue and purchase agreements and operational and administrative support arrangements described above.

Overview

We are a leading wholesale carrier of international long distance telephone calls and a provider of retail prepaid calling services and enhanced services for mobile operators.

Our operations consist of our Trading business, which includes revenue from wholesale trading ("Wholesale Trading") and revenue from traffic we terminate for KPN and its affiliates and TDC A/S ("TDC") ("Outsourcing"); and our retail services business ("Retail"). In Wholesale Trading we receive voice traffic from buyers-originating carriers who are interconnected to our network via Voice over Internet Protocol ("VoIP") or traditional time division multiplexing ('TDM") connections, and we route that traffic over our network to sellers-local service providers and carriers in the destination countries with whom we have established agreements to manage the completion or termination of calls. Following the closing of the KPN Transaction, approximately half of our traffic utilizes TDM connections, while the balance of traffic is carried over our global VoIP network. Outsourcing consists of traffic we terminate for KPN and its affiliates for international wholesale voice services and international direct dialing for calls originating or terminating in The Netherlands, and for TDC for their international traffic originating in Denmark. We consider Outsourcing as part of our Trading segment as the products we sell are primarily the same products that we sell to our Wholesale Trading customers and Outsourcing and Wholesale Trading are managed as one business.

We use proprietary, patented technology in our global VoIP network to automate the selection of routes and termination partners based on a variety of performance, quality, and business metrics. We offer our Wholesale Trading service on a wholesale basis to carriers, mobile operators, consumer VoIP companies, telephony resellers and other service providers worldwide. We have call termination agreements with local service providers in more than 100 countries in North America, Europe, Asia,

the Middle East, Latin America, Africa and Australia. We seek to expand our market share in our Wholesale Trading business by expanding our customer base and by introducing cost-effective international voice solutions for our customers, including complete outsourcing of international operations.

Our Retail business consists of retail prepaid calling cards, which are marketed through distributors primarily to ethnic communities within major metropolitan markets in the United States, and Pingo®, a prepaid calling service that we offer and sell directly to consumers via an eCommerce model. Both can be private-labeled for other service providers. The prepaid calling card business and Pingo leverage our existing international network and have the potential to deliver higher margins than are typically achieved in the Trading business. In addition, the retail prepaid calling card business typically has a faster cash collection cycle than the Trading business. In 2007 we launched PingoBusiness, enhancements that enable businesses to manage multiple Pingo accounts through a single administrative account.

TDC Transaction

On April 1, 2008, we acquired certain assets from TDC, the leading telecommunications carrier in Denmark, as well as certain assets, contracts and employees of TDC's subsidiary in the U.S., TDC Carrier Services U.S., for approximately $10.9 million in cash. We will also be the exclusive provider of international voice services for TDC under a five year strategic outsourcing arrangement, and TDC will be a preferred partner for terminating traffic sent by us into the Nordic region, consisting of Denmark, Finland, Iceland, Norway and Sweden.

Approximately 130 non-Nordic international wholesale voice customers, as well as all of TDC's interconnection and bilateral agreements for inbound and outbound international phone calls have been transferred to us. TDC will retain its Nordic customer base and its pan-Nordic reach.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. The preparation of these financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to (i) make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenue and expenses; and (ii) disclose contingent assets and liabilities. A critical accounting estimate is an assumption that could have a material effect on our consolidated financial statements if another, also reasonable, amount were used or a change in the estimates is reasonably likely from period to period. We base our accounting estimates on historical experience and other factors that we consider reasonable under the circumstances. However, actual results may differ from these estimates. To the extent there are material differences between our estimates and the actual results, our future financial condition and results of operations will be affected. Our critical accounting policies and estimates are described in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2007 Annual Report on Form 10-K for the year ended December 31, 2007. There have been no changes to these critical accounting policies and estimates for the three and nine months ended September 30, 2008.

Results from Operations

    The following table sets forth for the periods indicated the principal items
included in the Condensed Consolidated Statements of Operations as a percentage
of net revenue:

                                           Three Months Ended       Nine Months Ended
                                             September 30,            September 30,
                                            2008         2007        2008        2007
     Net revenue-external parties              80.7 %      75.4 %       82.7 %     75.3 %
     Net revenue-related parties               19.3        24.6         17.3       24.7

     Total net revenue                        100.0       100.0        100.0      100.0

     Costs and operating expenses:
       Data communications and
       telecommunications-external
       parties                                 82.9        77.7         82.5       76.1
       Data communications and
       telecommunications-related
       parties                                  7.5        14.9          7.2       15.0
       Engineering and network
       operations                               1.6         1.0          1.8        1.1
       Selling, general and
       administrative                           5.1         3.1          5.5        2.7
       Merger related expenses                  0.0         0.1          0.0        0.3
       Depreciation and amortization            2.5         0.6          2.4        0.6

     Total costs and operating
     expenses                                  99.6        97.4         99.4       95.8
     Income from operations                     0.4         2.6          0.6        4.2
     Interest income (expense), net            (0.1 )       0.4         (0.1 )      0.1
     Foreign exchange gain (loss), net          0.7        (0.2 )        0.2       (0.1 )
     Other income                               0.5           -          0.2          -

     Income before provision for
     income taxes                               1.5         2.8          0.9        4.2
     Provision for income taxes                 0.5         0.9          0.8        1.1

     Net income                                 1.0 %       1.9 %        0.1 %      3.1 %

Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007

Results of operations for the three and nine months ended September 30, 2008 include the results of the combined company following the closing of the KPN Transaction on October 1, 2007. Results of operations for the three and nine months ended September 30, 2007 are the results of operations of KPN GCS only. As a result, revenue and expenses for the three and nine months ended September 30, 2008 increased substantially. Thus, our operating results for the three and nine months ended September 30, 2008 are not particularly comparable to our results of operations for the same periods in 2007. In addition, as KPN GCS did not operate as a stand-alone business during the three and nine months ended September 30, 2007, the results of operations for this period may not necessarily be representative of the results of operations had KPN GCS operated independently of KPN. Our results of operations for the three and nine months ended September 30, 2008 reflect amortization expense of $3.8 million and $11.5 million, respectively, related to intangible assets recorded as of the closing of the KPN transaction, as well as additional expenses associated with our efforts to integrate the operations of the combined Company.

Net revenue. Our primary source of revenue from external parties are the fees that we charge customers for completing voice and fax calls over our network. We charge our customers fees, per minute of traffic, that are dependent on the length and destination of the call and recognize this revenue in the period in which the call is completed. Revenue from related parties consists of fees that we charge KPN and its affiliates for the traffic they send to us to complete over our network. The fees

that we charge KPN and its affiliates are based on the pricing in established service level agreements and other pricing arrangements. Our average revenue per minute ("ARPM") is based upon our total net revenue divided by the number of minutes of traffic over our network for the applicable period. ARPM is a key telecommunications industry financial measurement. We believe this measurement is useful in understanding our financial performance, as well as industry trends. Although the long distance telecommunications industry has been experiencing declining prices in recent years due to the effects of deregulation and increased competition, our average revenue per minute can fluctuate from period to period as a result of shifts in traffic over our network to higher priced, or lower priced, destinations.

Total revenue was $338.0 million for the three months ended September 30, 2008 compared to $215.7 million for the same period in 2007. Revenue from external parties was $272.9 million in the three months ended September 30, 2008 compared to $162.6 million for the same period in 2007. The increase in revenue from external parties primarily reflects the inclusion of approximately $130 million in iBasis revenue for the three months ended September 30, 2008, including revenue related to the TDC Transaction. In addition, the stronger euro in the three months ended September 30, 2008 resulted in an increase in revenue from external parties of approximately 10% in U.S. dollars, on our euro-denominated revenue over the same period in 2007.

Revenue from related parties for the three months ended September 30, 2008 was $65.1 million, compared to $53.1 million for the same period in 2007. The increase in revenue is primarily due to an increase in traffic sent by KPN's mobile entities and the effect of the stronger euro.

For the three months ended September 30, 2008, the breakdown of total revenue is as follows:

                                            (In millions)
                       Wholesale trading     $       238.1
                       Outsourcing                    70.5
                       Retail                         29.4

                       Total revenue         $       338.0

Data communications and telecommunications costs. Data communications and telecommunications costs are comprised primarily of termination and circuit costs. Termination costs are paid to local service providers, or to KPN and its affiliates, to terminate voice and fax calls received from our network. Termination costs are negotiated with the local service providers and termination costs for traffic we send to KPN and its affiliates are based primarily on pricing in service level agreements. Circuit costs primarily include fees for connections between our network and our customers and/or service provider partners and charges for Internet access at our Internet Central Offices.

Total data communications and telecommunications costs were $305.6 million for the three months ended September 30, 2008 compared to $199.8 million for the same period in 2007. Data communications and telecommunications costs from external parties were $280.4 million for the three months ended September 30, 2008 compared to $167.7 million for the same period in 2007. This increase was primarily due to the inclusion of iBasis costs of approximately $118 million for the three months ended September 30, 2008. In addition, the effect of the stronger euro, compared to the U.S. dollar, during the three months ended September 30, 2008, increased our euro-denominated costs over the same period in 2007 by approximately 9% in U.S. dollars. Data communications and telecommunications costs from related parties were $25.3 million for the three months ended September 30, 2008 compared to $32.2 million for the same period in 2007. These costs relate to termination and transmission costs for traffic sent to KPN for termination over KPN's network. These costs are not directly related to revenue from related parties. As a percentage of total net revenue,

total data communications and telecommunications costs were 90.4% for the three months ended September 30, 2008 compared to 92.6% for the same period in 2007.

Engineering and network operations expenses. Engineering and network operations expenses include the expenses associated with developing, operating and supporting our network and expenses for operating our network operations centers. Also included in this category are engineering expenses incurred in developing, enhancing and supporting our network and our proprietary software applications. Engineering and network operations support of the KPN GCS network are provided by KPN and charged to KPN GCS under a service level agreement.

Engineering and network operations expenses were $5.6 million for the three months ended September 30, 2008 compared to $2.1 million for the same period in 2007. The higher expenses primarily relate to the inclusion of $4.1 million of iBasis' engineering and network operations expenses in the results of operations for the three months ended September 30, 2008.

Selling, general and administrative expenses. Selling, general and administrative expenses include salaries, payroll tax and benefit expenses, and other costs for sales and marketing functions and general corporate functions, including executive management, finance, legal, facilities, information technology and human resources. KPN has historically provided certain corporate functions, including finance, information technology and human resources, and charged KPN GCS for this support under a service level agreement.

Selling, general and administrative expenses were $17.1 million for the three months ended September 30, 2008 compared to $6.7 million for the same period in 2007. The increase primarily reflects the inclusion of the selling, general and administrative costs of iBasis of approximately $14 million in the three months ended September 30, 2008. In addition, the stronger euro compared to the U.S. dollar, during the three months ended September 30, 2008, resulted in an increase of approximately $0.3 million in our euro-denominated expenses over the same period in 2007.

Merger related expenses. Merger related expenses of $0.2 million for the three months ended September 30, 2007 primarily relate to costs incurred for the preparation and review of the historical financial statements of KPN GCS in anticipation of the transaction with iBasis. These costs have been paid by KPN but are reflected in our results of operations for that prior period.

Depreciation and amortization expenses. Depreciation and amortization expenses were $8.5 million for the three months ended September 30, 2008, compared to $1.2 million for the same period in 2007. Amortization expense for the three months ended September 30, 2008 includes $4.3 million in amortization of identified intangible assets. These identified intangible assets resulted from the allocation of the purchase price of iBasis to the fair value of iBasis' net assets as of October 1, 2007, as well as the amortization of intangible assets acquired in the TDC transaction.

Interest income and expense. Interest expense, net was $0.2 million for the three months ended September 30, 2008 compared to interest income, net of $0.7 million for the same period in 2007. The increase in interest expense, net, primarily relates to interest on borrowings of $30.0 million under our bank line of credit and interest on the amount due to KPN related to the working capital adjustments as of the closing of the KPN Transaction.

Foreign exchange gain (loss), net. Foreign exchange gain, net was $2.2 million for the three months ended September 30, 2008, compared to a foreign exchange loss of $0.3 million for the same period in 2007. The foreign exchange gain of $2.2 million for the three months ended September 30, 2008 was primarily the result of the effect of the weaker euro, relative to the U.S. dollar, on a euro-denominated intercompany loan between our U.S. and Netherlands operations.

Other income. Other income of $1.8 million for the three months ended September 30, 2008 reflects a one-time benefit relating to the reversal of a liability for which the statute of limitations has expired. This liability relates to traffic termination costs claimed by a now-defunct carrier.

Income taxes. The provision for income taxes was $1.6 million for the three months ended September 30, 2008 and $2.0 million for the same period in 2007 was essentially the same, relative to pre-tax income. The tax provision in both periods primarily relates to income taxes on the income of our Netherlands operations (KPN GCS in 2007). For the three months ended September 30, 2008, the provision for income taxes, relative to pre-tax income, was substantially lower than in the first two quarters of 2008. The lower tax provision in the three months ended September 30, 2008 primarily reflects our on-going integration efforts, which have increased the level of management and support of our Netherlands operations resulting in higher charges for these services from our U.S. operations to our Netherlands operations. As a result, we have been able to reduce the income of our Netherlands operations on a year-to-date basis and, correspondingly, we have reduced the level of losses in the U.S. that can not be benefited.

Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007

Net revenue. Total revenue was $1,023.8 million for the nine months ended September 30, 2008 compared to $587.9 million for the same period in 2007. Revenue from external parties was $846.7 million in the nine months ended September 30, 2008 compared to $442.6 million for the same period in 2007. The increase in revenue from external parties primarily reflects the inclusion of approximately $413 million in iBasis revenue for the nine months ended September 30, 2008, including revenue related to the TDC Transaction. In addition, the stronger euro in the nine months ended September 30, 2008 resulted in an increase in revenue from external parties of approximately 13% in U.S. dollars, on our euro-denominated revenue over the same period in 2007.

Revenue from related parties for the nine months ended September 30, 2008 was $177.0 million, compared to $145.3 million for the same period in 2007. The increase in revenue is primarily due to an increase in traffic sent by KPN's mobile entities and the effect of the stronger euro, partially offset by lower prices on certain revenue streams.

For the nine months ended September 30, 2008, the breakdown of total revenue is as follows:

                                            (In millions)
                       Wholesale trading    $        764.3
                       Outsourcing                   188.6
                       Retail                         70.9

                       Total revenue        $      1,023.8

Data communications and telecommunications costs. Total data communications and telecommunications costs were $918.5 million for the nine . . .