Monday, September 04, 2006

Has The Vonage Death Watch Begun...Or Just Continuing?

With respect to Vonage lately...as a customer or investor...if you don't have a paddle for your life boat you'd at least better find yourself a good fitting life preserver.

Why?

Here's just a few reasons...as if you need more than 1 of these.

- At first glance at the numbers....it "looks" like Vonage's revenue increased from 12 months ago, but sales and marketing expenses increased substantially. In its first earning report since its IPO in May, Vonage announced a loss of $74.1 million for the second quarter, compared with a loss of $63.6 million 12 months ago. The loss, about $1.16 a share, came despite revenue of $143.4 million, compared to $59.4 million in the same quarter a year ago.

- Vonage's marketing costs increased to $90 million, a 46 percent increase over the year prior. Acquiring a new subscriber cost the Holmdel, N.J.-based company $239, up from $236 last year. Their monthly churn rate was 2.3 percent, or about 43,000 turnovers every 30 days. A survey by Brix Networks cited call quality as the main factor for why consumers decide to switch service providers.

- Vonage began trading publicly on May 24, at $17 per share. Faced with lawsuits , and little investor confidence, the stock has plummeted to $6.98 (as of August 1).

- In 11 years of operation, Vonage has yet to turn a profit. At its current rate of spending, Vonage will spend almost all of the proceeds of the IPO in customer acquisition in a single year at a rate of over $200 per customer.

- Vonage, which has about 1.9 million subscribers, still holds a substantial lead in the pure-play VoIP subscriber market, but is facing stiff competition from cable companies, traditional telecos, and low-priced new companies. According to a study by Infonetics Research, Vonage held 27 percent of the North America subscriber market. But, combined, Cablevision and Time Warner Cable held 39 percent of the market. Vonage once had a pretty substantial lead... but has since been passed by fast growing Cable company growth in offering their broadband phone services.

- Vonage is also seeing competition from companies offering cheaper and cheaper Internet calls. Skype has its free SkypeOut calling offer , which will expire at the end of the year. Also, Gizmo Project is offering free calls to landlines and mobiles in in 60 countries.

- Cable providers who offered telephone services ranked higher in customer satisfaction per a J.D. Powers & Associates report.

- Vonage CEO Mike Snyder cited an increase of average revenue per line, which rose $27.70 from $26.63 a year ago, as a good sign for the company. My take.....they're charging customers more which is why average revenue per line is up about $1.07. Combine that they charge more than their competition with their poor reputation for call quality and customer service...and that churn rate is going to go up too. Which will affect their average costs again.

- The initial success of the Vonage IPO has soured. So much so in fact that a shareholder lawsuit against Vonage in the United States District Court for the District of New Jersey..... by the Atlanta-based law firm Motley Rice..... asserts that the Internet telephony provider, its officers and the IPO’s underwriters misled investors. Specifically, the complaint alleges that Vonage’s officers decided to offer shares to customers because they knew institutional investors who normally buy IPOs would be reluctant to buy Vonage stock.

- A recent report from Telephia showed that more than 27 percent of VoIP subscribers who are likely to change providers cite network quality as their main reason for wanting to switch. Better pricing plans and improved customer service were also critical factors in why subscribers would switch service providers. Also, more than 12 percent of all VoIP subscribers are likely to leave their current VoIP service provider for another supplier within a year. "The VoIP market is highly competitive with many different players trying to get a bigger slice of the market share. Service providers who offer the best customer experience through superior product quality and excellent customer service will beat out their competition," said Kanishka Agarwal, vice president of new products, Telephia. None of this bodes well for Vonage in their current state and is likely to drive up costs.....and therefore debts...even more.

The heck with the oars and life preserver. I'd dumpVonage and find yourself another boat altogether. My suggestion....SunRocket or Packet8.

SunRocket.....offers both a monthly and an annual unlimited calling flat rate package. SunRocket Signature Service comes packed with everything you need automatically included in the bottom-line price. The annual package is only $199/year - that's under $17 per month! Includes a free extra number, all taxes, and no hidden fees. Fast growth is capturing a good chunk of the North American market. Financially stable and well backed.

Packet8.....offers unlimited local and long distance broadband phone service covering calls to all of Canada and the USA. Impressive international calling packages also available. Residential plans as low as $19.99/month, and business plans starting from $34.99. Specializes in small-medium size business including their award winning Virtual Office Suite and video phone service. Whole house broadband phone package based on industry leading Uniden phones is a standout. When you choose Packet8 for your phone service, you're getting best-in-class technology from an industry leading VoIP and videophone communications service provider, along with high quality of service, outstanding reliability and features galore. Here for the long haul with financial stability backed by industry leading business niche services.

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