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Carolyn Katz Elected to Board of Directors of Vonage Holdings Corp.


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Chief Financial Officer, John Rego

Vonage In Print News

Chief Financial Officer, John Rego

December 11, 2003

By Misa Kurasawa

There has been discussion to introduce some type of regulation to the IP telephony industry in the United States. Earlier this month, the Federal Communications Committee (FCC) started a workshop with the intention to discuss whether to implement regulations. We’ve talked to Mr. John Rego, Chief Financial Officer for Vonage the biggest IP telephony company in the U.S., about this situation.

Nikkei: The FCC recently started the discussion as to how to regulate IP telephony.

Mr. Rego: There are two separate issues here. What’s of issue here is if Voip is ever regulated, who should do it is it going to be the federal government, the FCC, or should it be the states. So, that’s question number one. Question number two is regulating it as what. Is it a telephone service or not. In the federal court opinion that we won in Minnesota, the judge said it’s not a telephone service, but rather a data service. Basically, the FCC recognizes that what we do is rather different than what a traditional telephone company does, it’s not what we do, but rather how we do it. There are no switches in the network; it’s just completely different.

So, what the issue is now that congress has already said that traffic over the Internet by its very nature is interstate commerce, meaning the federal government should regulate it. So, that is already out there, but folks will challenge that.

Nikkei: Should Voip be regulated?

Mr. Rego: If you think about the Internet in general and regulation around it has been very loose. It’s unregulated on purpose. The idea behind it is not to cumber this thing with regulation and let capital flow into the Internet, and let it grow. So, our best case scenario is that the industry stays unregulated for periods of time. In the case of the cell phone industry it was ten years. Ten years without regulations and then the industry grew and obtained some critical mass, the regulations that made sense were put around it. We ultimately think it will be regulated, but should be regulated as its own industry.

Nikkei: Do you already have 911 emergency call capabilities?

Mr. Rego: We have an interim solution, and we’ll build two other solutions as we go forward. One of the complexities of doing 911 in the Internet world is that the Internet doesn’t know your location. The traditional telephone world has dedicated infrastructure that the 911 call travels along. Vonage doesn’t have access to the network right now and we are working to get that access.

The second phase is actually going to be getting access to the dedicated infrastructure, and phase three will be coming up with an equivalent on f the e-911 solution. So, when your call goes to the public access answering point, the dispatcher actually knows your address because it will be flashing in the screen with your phone number. It’s going to take us about eighteen months to two years to get to the point. It’s not regulated to do that, but we are doing it on our own voluntarily.

Nikkei: Big cable companies as well as phone giants, like Verizon and SBC are entering the market do you see them as competitors?

Mr. Rego: Verizon’s vice-chairman at the UBS conference made a speech where he said that it “looks like the boat is here.” They’re suggesting that they’ll have some type of Voip offering next year. It sounds like what they are going to do next year will be something similar to Skype you’ll get some software you can download and call each other, but you can’t call out of the public switch network. We truly believe our competitors are traditional telephone providers, 180 million telephone lines that they can control.

Nikkei: What’s your expansion plan?

Mr. Rego: We’ve build networks in 38 of 50 states, and we’ll have networks built out in all 50 states by the end of next year. We will be in Europe and Canada right after that.

2003 was really the year of growing the business and doing as many good distribution deals as we could. We worked very hard on what we call the private label or wholesale distribution channel. This is what Vonage with broadband providers directly, so that broadband provider has their own phone offering.

Earthlink was the first ISP and then we signed seven cable companies that have half a million DSL customers. We exited 2002 with around 7,500 customers and today we have about 75,000 customers. So, 2003 was a year of distribution.

We’ll keep replicating these models now and expect to get a few more retail deals next year and a significant amount of cable and ISP-type of deals next year. We’ll keep growing the business that way. So, we will exit the year with probably around 90,000 customers and we’ll probably exit near year with 300,000 customers and just keep growing from there.

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†AK and HI residents pay $29.95 shipping. ††Limited time offer. Valid for residents of the United States (&DC), 18 years or older, who open new accounts. Offer good while supplies last and only on new account activations. One kit per account/household. Offer cannot be combined with any other discounts, promotions or plans and is not applicable to past purchases. Good while supplies last. Allow up to 2 weeks for shipping. Other restrictions may apply.

1Unlimited calling and other services for all residential plans are based on normal residential, personal, non-commercial use. A combination of factors is used to determine abnormal use, including but not limited to: the number of unique numbers called, calls forwarded, minutes used and other factors. Subject to our Reasonable Use Policy and Terms of Service.

2Shipping and activation fees waived with 1-year agreement. An Early Termination Fee (with periodic pro-rated reductions) applies if service is terminated before the end of the first 12 months. Additional restrictions may apply. See Terms of Service for details.

HIGH SPEED INTERNET REQUIRED. †VALID FOR NEW LINES ONLY. RATES EXCLUDE INTERNET SERVICE, SURCHARGES, FEES AND TAXES. DEVICE MAY BE REFURBISHED. If you subscribe to plans with monthly minutes allotments, all call minutes placed from both from your home and registered ExtensionsTM phones will count toward your monthly minutes allotment. ExtensionsTM calls made from mobiles use airtime and may incur surcharges, depending on your mobile plan. Alarms, TTY and other systems may not be compatible. Vonage 911 service operates differently than traditional 911. See for details.

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