Vonage flounders amid slowed subscriber growth

Internet Protocol telephony player Vonage is still hanging on, but the company, which has been mired in a nasty patent battle with Verizon Communications, is teetering on disaster as it struggles to sign up new customers.

Vonage said Thursday during its second-quarter conference call that it has completed the necessary work-arounds for the Verizon patents that a court found it infringes, but the legal drama has cost the company dearly in terms of recruiting new customers.

Jeffrey Citron, the company's interim CEO, told investors and analysts the company had substantially completed deployments of work-arounds for two of the three patents that a court in March said it had infringed. And it's completed development for a work-around of the third patent.

"This is a significant step toward moving ahead with our business in the wake of the Verizon litigation," Citron said in a statement.

Vonage's legal troubles have no doubt scared off customers. What's more, Vonage, which had aggressively marketed its service by splashing banner ads all over the Internet and flooding television airwaves with commercials, has pared back its advertising budget to reduce costs. For the second quarter the company spent just $68 million on marketing, down from $91 million in the first quarter.

The pullback helped the company reduce its losses by about 50 percent for the quarter, but it also slowed the company's subscriber growth.

During the quarter, Vonage added only 57,000 new customers. This is down dramatically from the 166,000 new customers it added in the first quarter. In total, Vonage now has about 2.45 million subscribers. Meanwhile, cable operator Comcast reported about 3 million digital phone subscribers at the end of the second quarter, making it the largest Internet telephony player. Citron said the company plans to be more targeted with its advertising to attract new customers.

But Vonage didn't just have trouble acquiring new customers. It also had trouble keeping them. During the second quarter its churn rate or the rate at which customers cancel service rose to 2.5 percent from 2.4 percent in the previous quarter.

Citron said he had surveyed customers at Vonage and discovered that as many as seven out of 10 customers who left the service did so because of spotty customer service. Citron vowed to change this.

"It doesn't take a lot of bad experiences to cause a few thousand customers to leave, and that reduces net adds," he said. "We expect to make modest improvement in the next quarter dealing with these issues of churn and improving the customer experience."

Vonage is competing in a tough market and it will likely get tougher. Now defunct, SunRocket is just one example of how quickly things can go from bad to extreme disaster. Even Citron admitted he was surprised by how quickly the company sank.

"I was shocked to see the company go from having capital troubles to not signing up new customers and closing its doors," he said. "We tried to get as many of those customers as we could, but the demise was far too fast for any of the competitors out there to get to those customers."

Vonage still has $191 million in working capital that should keep it afloat for a little while. But if it can't stem the tide of defections and boost subscriber growth, the company's days could be numbered.

UPDATE: Vonage executives said during the conference call that the company has $191 million in working capital, which is the cash the company has on hand to run its day-to-day business. The company's total cash equivalents and marketable securities as of June 30, 2007 totaled $344 million, which includes $66 million of restricted cash used as collateral for the Verizon bond. Last quarter, Vonage had $410 million in cash and securities.

[baldguy61]

Vonage Death Throes

I sincerely hope this band of thieves goes belly-up. They sold me their service and an IP phone, but neither showed up. They then charged me for monthly service and when I closed the account, refused to refund my money. Cute ads, but a total ripoff. Skype gives me real service and no monthly charges.

[maychic]

Maychic.com/freebook, Reply to -Vonage Death Throes

This explains why they are having a problem signing up more subscribers. If this is really true, then it should not be a surprise if most of their subscribers begin to unsubscribe sooner or later, and the company would have to go belly up.
American Corporations need to be educated in customer service. They are doing extremely very poorly. If they don't change, sooner or later foreign Corporations would take them over as well as their markets. An example is T-Mobile, who came out of nowhere and now dominates New York Cellphone business. I am even one of their customers because their service is great.

[keith.r.benedict]

Vonage needs better customer service

The phone service they provide is good. But when things go wrong and you need to call their customer service line, heaven help you. You're going to talk to somebody who you can barely understand and who barely understands you. What's worse is that they are totally indifferent to the problems you're having.

I tried SkypeIn and SkypeOut, but as the old saying goes, you truly do get what you pay for. Skype is a cheap alternative, but it doesn't have remote access to voicemail, outbound caller id, and many other features that Vonage has.

I'm placing my hope in T-Mobile. It looks like they may jump into the VoIP fray.

[davidrepas]

The positive side

I guess there's always another way of looking at the same data. The following is good news.

Adjusted loss from operations narrowed dramatically to $18 million in the quarter, a 70% improvement from $60 million in the year-ago quarter.

Second quarter 2007 revenue grew to $206 million, up 43%

Cash holdings are $344 million (not $191 million as posted on the "News Blog")

Average monthly telephony services revenue per line for the quarter grew to $27.63, up 4%.

[mulletmaniac]

CAUTION : VONAGE WILL RIP YOU OFF

I signed up for vonage in 2004 and several times attempted to cancel due to crappy voice quality but they would continue to lure me back with free service. I recently had my vonage # ported over to another service and when I called customer service to cancel I was told by vonage that since my # was ported over that the account would cancel automatically. A few weeks later vonage charged my account and when I called to cancel the account they would not refund my money. Awful customer service and even worse voice quality..Stay away from Vonage soon their ship will sink..

[belal12]

I agree

Originally I was a Optimum Voice subscriber (with the triple play service when it was first launched). When I got fed up with Cablevision's disgusting customer service, I switched over my VOIP service to Vonage thinking I could hold onto my phone number and change ISP with no problem to maybe Verizon DSL. Things didn't work out so well because voice quality from Vonage was terrible. Their customer service wasn't that good either and I found myself missing Optimum Voice and it's better quality of voice service. When I tried to switch back to Optimum Voice, Vonage wouldn't let me transfer my phone number to Optimum Voice. It's funny because Optimum Voice had originally let Vonage transfer my phone number to them, but now Vonage wouldn't let me transfer my phone number to Optimum Voice!

Anyway, Optimum Voice is much better. The customer service got a little better and since they started giving $25 back with the Optimum Rewards program, It's like I'm paying $5 a month for Optimum Voice. You can't beat that...

[urwiseking]

Vonage is a nightmare

I recently tried to cancel service and have spent about 3 hours waiting and then was lied to. I finally had to call the credit card company and cancel and have another issued to stop them from continued billing. They deserve to go belly up with the business philosophy they employ. The sooner the better IMHO.

[kelbolin]

Massive Savings

I agree their customer service leaves MUCH to be desired - it was a nightmare getting our office system set up, but when done our bill dropped from the mid $500s to around $180 a month, and now that our other company's contract has run out with ATT we are moving it to Vonage as well. Between both companies will expect to save over $700 a month -- we are small business, that's real money, and headaches go away.

[CMorris72]

Vonage a good value- Cable is the rip-off

I've had Vonage for 2 years with no problems. Voice quality is good for us. We call internationally all the time, huge savings vs. land lines. Compare the int'l rates to Comcast or other cable co's, it's generally 30-50% of the cost per minute. And watch out for other costs from the cable cos- when I switched to directv because of crappy cable picture and service they charged $55 bucks to "reduce service" (wouldn't have applied if I quit all services), and the internet rost from $40 to $55 per month.

[Hardrada]

Vonage deserves to go belly up

I was Vonage customer for around an year in 2004-2005. Customer service is horrible, most of the time they don't know what they are talking about. And, finally they'll blame on internet service provider. Phone service is okay (when it works), but god forbid if you have to call them !!

Recently, I was ripped by SunRocket thugs, but never considered going back to Vonage. I would love to see them go belly up.

[bulldawg51]

Vonage is great!

I've been a customer for 8 months or so and I have had a great
experience with Vonage. In setting up the system, I called them and
they helped me quickly and professionally. I called to cancel a fax
line, due to little use, and I was taken care of quickly. The call
quality could be a bit better but it's not enough to cause me to
switch. For the savings I get, it more than offsets the occasional
minor extra noise I have had in a call.

[Wiz Zee]

Looks like we are in the minority but I agree

I've been with Vonage for about 4 years and have few complaints. The problems that I have had with VOIP have been caused by my ISP (Verizon). But the price on Vonage is right and the service is loaded with cool features.

I definitely like the email notices when a voice mail comes in. Vonage also has a cool new voice to text feature that (for a small feee, of course) transcribes all incoming voice mails and sends them via email. Very convenient and handy.

[maeckig]

Vonage works, but Verizon is just a bully

VOIP has some limitations so it will never be as big a competition to telcos as Verizon likes to whine about. Cell phones are eating the lunch of landlines, not VOIP (guess who is a large cellular provider). It has been picked on by Verizon to scare off other VOIP providers as well.
Vonage has worked better for me over the past several years; some of this is due to better bandwidth from Cox. Vonage offers a service that telcoms do not at a price point that they do not.
The Vonage website lets one do almost everything one needs and keep track. I did have to call to cancel one line, but it was done in less time than most support calls to a telco.
Vonage has done a lot to spread the word about VOIP, offers some solid service and deserves a chance to grow.
I never invested in Vonage and am only a customer, but would miss the service if it were forced to close. It would reduce the alternatives available to consumers.

m.

[gc1961]

Vonage is Criminal

The way Vonage lowers churn is by making it impossible to cancel!

You can only cancel by phone; no email, fax, web-page.

When you call the agents are clearly paid to change your mind and, since this there is no recording, they can simply say you are cancelled and just forget the call ever occurred. We asked for a confirmation transaction ID after several attempts to cancel and were informed that they don't have a cancelation system that generates transaction IDs - oh please!

Net is that everyone should stay clear of Vonage; when you try to cancel you are in for big problems.

I recorded complains with my State Attorney General, the FDA and the BBB.

I hope they go down hard and fast!

Yes, I am pissed about my experience with this company.

[gc1961]

They are a bunch of crooks

I am tempted to buy some stock to go hound them on investor calls, etc.

[gc1961]

There are better options than Vonage

You are asking for a lot of trouble.

Try the nex Comcast small business service; the quality for me is much better.

[Blito]

Customer servie is the purest form of waste

Customer service is the purest form of refuse and also sales. They are very pushy in the sales department and use very high end tactics to confuse customers for more money.
But if they come out of this they might be able to pay better people that actually speak english well but I thought they had allot of capital.

[MikeLab]

I haven't had problems.

I've had Vonage for about 18 months and am very happy with it. Most things I need to do, I can do on their webiste without having to call customer service. Over the past 18 months I probably have called customer service 4 or 5 times. I got a really good person a couple of times and I got a really bad person a couple of times.

I have multiple lines and pay about 1/3 of what I used to pay from Verizon. If companies like Vonage get squashed, I'm not crazy about being forced to choose between a big phone company and a big cable company for phone service. I like having other choices.

[Johnny.Alpha]

Should it be any surprise

As far as I'm concerned it was well deserved. Vonage customer support is short of malicious. Good riddance.

[djmike6]

Vontage is the worst kind of pain

The sales person lied to me, they promised tech support to get my 4 lines working, they only sent half of the modems needed, omitted to tell me that when I changed from AT&T the Internet service the system needed would stop, shunted all my business calls to my email (which I couldn't get), then told me that there was NO tech support in my area, kept me and my secretary on hold for days, billed me for a "early cancellation" when they provided NO service, and had the gall to bill my credit card for this crap. The whole horrible experience cost me over a thousand dollars in lost business.

The sooner they fold, the better the world will be. I cannot say enough bad about my experience with them.

DM

[maychic]

maychic.com, On Poor customer service, Why didn't you sue them?

They gave you all these hassles for being crazy enough to try their service, right? But what did you do? Did you sue them for all the headaches they gave you? If you didn't then that explains why they continue with this reprehensible customer service

[tsh332]

No complaints with Vonage

I just haven't experienced anything negative with Vonage. We've used it for three years, through three moves with the same number, and now use the same US number while living in Europe. Our first router/Vonage adaptor finally failed after three years of constant use and Vonage had our old number reassigned to the new router ($50) after less than ten minutes. The quality has been consistently pretty good but we have noticed a little difference depending on the broadband carrier we were using at the time. If you are having problems with a Vonage line, odds are it is the quality of your broadband connection. Rather than deal with this, people get frustrated and want to blame their Vonage adaptor. We've had nothing but a great experience and I'll take Vonage over some behemoth cable company any day. With Vonage I can keep the same number regardless of the cable company covering my new address, and be up and running as soon as I move and have broadband service again.

[kaw5]

Great Vonage Experience

Setting up Vonage was one of the easiest computer experiences I've had in my life. Online account set-up was a snap and the VoIP box was plug and play (in the most literal sense of the term).

For all those complaining about lack of tech support, maybe you should consider the possibility that you should not be setting this up by yourself. And, don't expect Vonage's free tech support to solve all your problems. This especially goes for the person that lost money in their business. If you don't know enough to do this yourself, maybe you should hire someone.

People seem to think that setting up a new service should be cheap and easy, regardless of knowledge about phones, computers or networking. Providers are partially at fault for this because of their advertising, but, in the end, Vonage provides a good service for a reasonable price.

[vertical2010]

Now Voicemail Problem

After months of spotty service - which Vonage tried to blame on Comcast - now there are voicemail problems. CS rep stated problem would be fixed in 12 hours. That was 24 hours ago. Will we see even more problems related to glitches in the Verizon patent "work-arounds?" I think very likely. Looks like I will soon be headed elsewhere, while I can still have my number transferred.