Vonage IPO is good for VoIP
NetworkWorld.com, 05/24/06
Now that Vonage is a $3 billion company based on its IPO this week, the battle among VoIP service providers will accelerate.
As a public company, Vonage will have to meet board and Wall Street expectations for performance, which will likely mean that it has to turn a profit sometime in the foreseeable future. Till now, the company has gotten a high profile by virtue of its extensive (expensive) advertising and racked up 1.7 million customers.
But one account of its public stock offering indicates the company spends $221 to land each customer. That means it takes most of a year before each customer pays that much to Vonage so it can start making money from the account.
The big draw for Vonage is cheaper phone prices. All-you-can-eat phone service for calls within the U.S. for as little as $15 per month for customers that also have a broadband Internet service - cable or DSL, for example. But prices for regular phone prices are dropping and traditional carriers are offering VoIP plans of their own, so this lure fade over time.
Given the unreliability of Internet providers and their lack of service-quality guarantees needed to support stable, clear voice, some potential customers may be reluctant to sign up, and this creates another hurdle for Vonage. Some of these network providers - AT&T and Comcast, for example - are also selling VoIP that they can bundle with other services, Vonage faces a real battle.
Wall Street observers say the company won't turn a profit for two years, and that assumes it continues to boost its customer base, sells service enhancements that wring more money out of each customer and increase the number of businesses that use the service.
While this is a tough scenario for Vonage, it is good for VoIP customers. Regardless of Vonage's ultimate fate, and regardless of the pressure put on it by other providers, the company's presence bolstered by an infusion of cash mean it will pressure its competitors in return. That could result in keeping pressure on all VoIP vendors to keep prices down.
-- Tim Greene
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