Interesting Story about Vonage and where it might be heading

Posts: 243 · Vonage Forum Master Joined: Jan 18, 2004 Posts: 243

Interesting story
http://gigaom.com/2006/06/09/is-vonage-the-new-mci/

Posts: 1424 · Posted: Fri Jun 09, 2006 7:58 am Post subject:

Thanks for posting that, it was very interesting.

It would probably be unfair at this point to ask, "Whatever happened to MCI?"

Also, I think that Berninger is missing the point on competition from Yahoo!, Google and Skype. The fact that they aren't replacements at the moment doesn't mean that they won't be the minute Vonage succeeds in conquering the hurdles put in place by the Baby Bells and cable companies. That is, why not let Vonage spend its energy on the fight and simply step in at the last second on their coattails. There is no significant barrier to entry like there was in the long distance market.

I think the final point that Berninger missed is that VoIP<->PSTN service is a transitional product intended to fill a gap until VoIP takes over. That is not to say that POTS will ever go away but that calls between Google customers and Yahoo! customers need not ever traverse the PSTN or make use of a NANP number. Vonage is avoiding the reality of this situation by not using their VoIP market leadership position to establish peering agreements while they have the upper hand. The only way for the Bells to stay in control of their monopolies is to prevent that Internet only call from ever becoming a reality. I don't see the Bells able to prevent it, merely slow it down.

Ultimately while MCI was a vanguard for a change in the technology behind how long distance calls were carried, VoIP is a fundamental change in telephony away from a centrally managed system with fixed termination points into a cooperative, flexible and mobile system with customers in control. Very simply this is like changing from standard mail where the Post Office role is played by the Bells to email, where even you and I can run our own servers.

Posts: 20 · Vonage Forum Associate Joined: May 31, 2006 Posts: 20

This is the most clear-headed assessment of VG's competitive position I've read. It is clear that Skype is not serious competitor as it does not offer a comparable service. Moreover, its P2P infrastructure does not allow it to morph into a comparable service. The seriousness of the Verizon/Comcast threat is less clear, at least to me. Berninger states that V/C do not try to compete directly and that they are more interested in bundling for themselves and monopolist tactics against VG. But I don't understand why they don't try to compete directly and if not now, why not in the future. Once a month I get a letter from Verizon saying "We want you back! For just $39.95..." Hey Verizon, $39.95 and similar numbers is why I left -- get real. I don't see why at some point I won't get a letter from them with, say, $16.95 as the number. Were that to happen, I would worry about VG.

Posts: 14 · Vonage Forum Associate Joined: May 08, 2005 Posts: 14

Very good article, Thank you for the post.

I would have to say that vonage has nowhere to go, but up. I've been a customer for over 2 years, and love it. I have been lurking here and would have purchased stock if I had the money, knowing full well the risks, and would have paid for my loses. As it is, I have purchased $100 on the market, a piddly sum I know, but what I could afford to loose, as my first stock purchase. (besides 401k). But back to the article at hand.

The big things that keep me with vonage are the price and portability. My parents and inlaws have Cox's version of VOIP, which is essentially just a line from their cable box into their phone box. I like being able to take my converter with me and use my vonage line on business trips. I have used it in Pennsylvania, Virginia, Wisconsin, Arizona, California, Colorado, Korea (had some trouble but got it working). Let me see you do that with cox. As for price, currently I use the unlimited plan. My parents pay $15 more and only get 100 minutes of long distance, then its something like 5 or 10 cents a minute after that.

I recently moved across country, and now I have both a pennsylvania number, and an Arizona number. The only problem is the marketing calls at 6am, because it is after 9 on the east coast. I can't wait for the call blocking, if it ever happens.

Posts: 18 · Vonage Forum Associate Joined: May 21, 2005 Posts: 18

Here's part of an article in tomorrow's Wall Street Journal:

Poor Debuts May Mark
A Potential Softening

History Doesn't Bode Well
For a Vonage Turnaround;
VeraSun Heads Busy Week
By LYNN COWAN
June 12, 2006

Heads up to Vonage investors: An IPO that sorely disappoints investors in its first week of trading is likely to go on delivering misery for months to come.

Since 2003, the five U.S. initial public offerings each year with the worst first-week stock losses have consistently remained poor performers well beyond their debuts, according to data from Thomson Financial. Excluding the market's most recent disappointment, Internet phone-service provider Vonage Holdings Corp., only two of 19 bad first-week performers since 2003 managed to rise above their IPO prices in the four weeks following their debuts. As of Friday, all but five remained underwater.

"The laggards continue to lag and the winners continue to win," says Thomson's chief market strategist, Richard Peterson. "Once you're down, it's hard to get up."

Academic research into longer-term IPO performance has shown similar outcomes. A study published in the Journal of Finance in 1999 found new stocks that have a cold start -- they fail to close above their IPO price on their first day of trading -- decline on average an additional 12% over the next year.

Posts: 6 · New Forum Member Joined: May 23, 2006 Posts: 6

Forget the academic research. VG's growth rate has got to be above the average rate for all IPO stocks, and what this study fails to do is focus in on the same group of similar companies. It includes the wider collection of IPO stocks that would include a lot of tiny companies on much smaller exchanges than the NYSE. The study should have looked at:

-- Only NYSE stocks
-- Stocks with similar growth rates

Posts: 243 · Vonage Forum Master Joined: Jan 18, 2004 Posts: 243

Another Interesting Story...

http://www.newtelephony.com/news/66h2184036.html

Vonage Gets Gray Hairs
By Kelly M. Teal
Posted on: 06/21/2006

Vonage Holdings Corp. has had a rough go of it the past few weeks. First, the VoIP provider launched an allegedly overpriced IPO that landed it in hot water with shareholders. Then it was slapped with a patent lawsuit from Verizon Communications Inc.

But is Verizon really concerned about patent infringement, or are other motivations at work? And, perhaps more importantly, what can Vonage do to recover from this spate of back luck?

New Telephony asked two analysts for their input on these questions.

“Vonage has been a high-visibility company for years,” says Victor Schnee, president of telecom consulting firm Probe Financial Associates Inc. “It sounds at least a little bit strange that Verizon wouldn’t have any idea how the technology worked.” Schnee adds that Verizon’s VoiceWing VoIP service is “an embarrassment,” explaining that it drops his calls and loses his voice messages. “If they have these wonderful patents, why don’t they have service that works?” he asks.

Brian Washburn, principal analyst for network services at Current Analysis, also is skeptical of Verizon’s timing and goals related to the Vonage action. “It does seem odd to me,” he says. “An S-1 is usually filed a long time before an IPO. … It doesn’t sound right that [Verizon] just happened to notice right after [Vonage] went public that something potentially infringed.”

Vonage registered its intent to go public on Feb. 8. Verizon filed its lawsuit in federal court on June 12, several weeks after Vonage went public.

In its complaint, Verizon alleges that, “Vonage has unfairly capitalized on Verizon’s investment in VoIP research and development by using Verizon’s patented technology in its VoIP service offerings, including Verizon’s inventions relating to (a) gateway interfaces between a packet-switch and circuit-switched network, which is critical to implementing commercially-viable VoIP telephony; (b) billing and fraud detection in commercial VoIP telephony; (c) call services in commercial VoIP telephony, such as call forwarding, follow me, and voicemail; and (d) methods relating to the use of Wi-Fi handsets in a VoIP network.”

While Schnee and Washburn decline to comment on whether Verizon’s case has merit, Schnee says that patent claims in general are frequently questionable, while Washburn notes the Verizon action could drive down Vonage’s market valuation even further, which could drive the VoIP pioneer out of business and/or make it a prime target for a buyout.

“Patent claims are often weak or bogus,” says Schnee. “I don’t want to say Verizon doesn’t have a lawsuit … [but] patent strike suits have been a way monopolies or bigger companies try to thwart smaller competitors … so it raises, at the least, a serious red flag.”

Washburn adds that the suit is likely to “grind along for a long time.”

So what’s a VoIP provider to do?

Schnee says Vonage should try to recover from its rough ride by continuing to sign new subscribers, despite the high costs; exploring a joint venture with a company with common interests; push for VoIP provider consolidation; and establish an antitrust case against the RBOCs.

For the joint venture, Schnee suggests that Vonage consider a relationship with Clearwire, the wireless broadband ISP, or a similar entity. “If we look at companies like Clearwire that are trying to go public, Clearwire is going to need products and customers and national marketing, and Vonage has a pretty good start on those things,” Schnee says, adding that this also would help Vonage cut some of its costs.

As for consolidation, Schnee says Vonage should “put the heat on all of the other little guys who are out there selling VoIP” to consolidate with Vonage. “A lot of those little guys are never going to have an exit strategy,” he adds. “Even though Vonage’s stock may be beat up, it’s still a currency … it can go up.”

As for the antitrust suggestion, Schnee says Vonage should “start building a case against the RBOCs. … There is no question that the RBOCs have discriminated against them and other VoIP carriers … I know it firsthand.”

If Vonage takes such steps, Schnee expects the company could rid itself of the stigma that surrounds its IPO and its overall reputation. If they get some of those things right, he says, executives “could begin to maybe create a different aura about the company.”

Current Analysis Inc. www.currentanalysis.com
Probe Financial Associates Inc. www.probefin.com
Verizon Communications Inc. www.verizon.com
Vonage Holdings Corp. www.vonage.com

Posts: 1424 · Posted: Fri Jun 23, 2006 9:21 am Post subject:

Another good story, it deserved its own thread and a descriptive topic title.

gfoulks wrote:

While Schnee and Washburn decline to comment on whether Verizon’s case has merit, Schnee says that patent claims in general are frequently questionable, while Washburn notes the Verizon action could drive down Vonage’s market valuation even further, which could drive the VoIP pioneer out of business and/or make it a prime target for a buyout.

Would Verizon be attempting to drive down Vonage's price to buy it out themselves? Verizon could boost VoiceWing to the number 1 VoIP provider, get more visibility for its FIOS product and establish a foothold in Europe and Canada in one fell swoop. But, with Verizon focusing it's money and energy into the FIOS roll out would integration of a VoIP company be trouble?

gfoulks wrote:

For the joint venture, Schnee suggests that Vonage consider a relationship with Clearwire, the wireless broadband ISP, or a similar entity. “If we look at companies like Clearwire that are trying to go public, Clearwire is going to need products and customers and national marketing, and Vonage has a pretty good start on those things,” Schnee says, adding that this also would help Vonage cut some of its costs.

Vonage announced a similar agreement in the UK before the IPO. An agreement that was to make Vonage available at hotspots around the country. Vonage, in the past, has had reseller agreements with ISPs, this suggestion differs in that Vonage actually partner with an ISP as well. This would be detrimental to Vonage's expansion goals unless that ISP could serve a large geographical area without using incumbent last mile. The only opportunity of this type that makes sense would be to jump on Internet over Powerline technology hard and become the de-facto phone service for that medium if and when it becomes available.

gfoulks wrote:

As for consolidation, Schnee says Vonage should “put the heat on all of the other little guys who are out there selling VoIP” to consolidate with Vonage. “A lot of those little guys are never going to have an exit strategy,” he adds. “Even though Vonage’s stock may be beat up, it’s still a currency … it can go up.”

Vonage needs to focus on getting customers into VoIP, not starting a war over existing VoIP customers. Here's why, if Vonage starts putting pressure on the little guys then one of them may do something desperate. It could result in a VoIP company closing its doors overnight leaving customers without service and the possibility that they lose their phone numbers. If that happens the press will paint all VoIP providers with the same brush.

Conversely Vonage needs to be prepared to step in an buy out any VoIP provider who is about to go under to prevent this very scenario from occurring.

gfoulks wrote:

As for the antitrust suggestion, Schnee says Vonage should “start building a case against the RBOCs. … There is no question that the RBOCs have discriminated against them and other VoIP carriers … I know it firsthand.”

And this brings us full circle back to the MCI comparison. However, unless I misread the political landscape, Vonage needs to save this effort until after the 2008 elections. The current administration has been very reluctant to pursue any legal actions that could disturb the status quo.

Posts: 94 · Vonage Forum Senior Joined: Jun 17, 2006 Posts: 94

http://gigaom.com/2006/06/09/is-vonage-the-new-mci/

I thought this was very good analysis.

Posts: 111 · Vonage Forum Senior Joined: Jun 15, 2006 Posts: 111

So a former employee and friend of the crooked Jeff Citron thinks Vonage is a buy. What a huge suprise.

The numbers he cites in his article are wrong. He wrote that "Even the so called failed IPO serves to build customer awareness not to mention provides $531mn in funding allows Vonage to grow into its marketing budget."

Like you longs, this guy never read the prospectus (I will give him the benefit of the doubt and assume he is not deliberately lying):

We expect that the net proceeds from our sale of 31,250,000 shares of common stock in this offering will be approximately $493.7 million

I guess you guys don't think $37 million is significant. 531, 493.7, same difference. Actually the net proceeds will be even less because Vonage will have to cover all of its subscribers who (very wisely) refused to pay $17 for shares that clearly were never worth that amount.

I note that this guy is paid to do "market research" for technology companies, and that he is a VoIP bull who knows Citron personally. Wonder how much Vonage pays the guy a month? He doesn't disclose one way or another.