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peterlee Posted:
Had a call from a
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rio
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HildBeft Posted:
You can recollect
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and open the
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The devices are
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Hi these are most
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trillian
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PostPosted: Tue Jul 11, 2006 7:06 am    Post subject: Reply with quote Back to top

Quote:
But many companies are betting that broadband customers are worth acquiring. Vonage may be in an enviable position.


Vonage doesn't have any broadband customers? It has customers that need a broadband connection to use it's services. When the customers broadband provider starts giving away the same service for free......
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BigTime
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PostPosted: Thu Aug 03, 2006 6:34 pm    Post subject: Reply with quote Back to top

Based on recent earnings, a buyout still makes absolutely no sense. As I mentioned before, there is no reason for a cableco, all of which consists of a scattered group of regional services, to want a nationwide set of customers.

But most importantly, it is a whole lot cheaper to just get those customers on your own. Vonage still trades at about $600/customer. Why on earth would a company pay that type of money? Voip are simply not worth $600 each.

Speaking of which, another interesting statistic is that Vonage has about 0.011 of a customer per share.

Think of this on a small scale. Would you be willing to pay $600 for someone who pays on average $27 a month, and who has a 28% chance of canceling within 12 months. I wouldn't. That's why I am betting Vonage goes down much more.
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scerruti
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PostPosted: Thu Aug 03, 2006 7:40 pm    Post subject: Reply with quote Back to top

When you calculate that $600/customer, do you subtract cash on hand and any physical assets first? How about value of intellectual property, for example the patents they just purchased?

The only company I hear experts mention in conjunction with a Vonage acquisition is Sprint.

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BigTime
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PostPosted: Fri Aug 04, 2006 12:11 pm    Post subject: Reply with quote Back to top

If you want a super-accurate one, you will not just have to include cash, but also regular debt, the convertible debt and the unissued stock options, and the purchase premium

But the result is probably within $100 of my estimate.

Why would Sprint spend $600 to gain a new type of customer who are cheap and unprofitable and had a 28% chance of leaving within a year, when it can spend $150-200 to gain a customer that is locked in for 1 - 2 years and it makes money off of?

The cost of taking over Vonage goes far beyond its price. This is the most hated company on Wall Street right now. It is the more than anything the cause of the sour mood on IPOs. No telecom or networking analyst thinks the company is any good. A company that announced it was planning to buy VG would immediately take a huge hit in the market, and justifiably so.
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scerruti
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PostPosted: Fri Aug 04, 2006 2:50 pm    Post subject: Reply with quote Back to top

BigTime wrote:
Why would Sprint spend $600 to gain a new type of customer who are cheap and unprofitable and had a 28% chance of leaving within a year, when it can spend $150-200 to gain a customer that is locked in for 1 - 2 years and it makes money off of?



Assuming the stock price dropped to around $3 then we could assume a per customer price of $300 or possibly lower (based on cash, debt, etc.). That is equivalent or lower than mobile phone customer acquisition costs.

To be clear, I think when people are talking about a Sprint acquisition of Vonage they are not talking about a Sprint/Nextel acquisition, but an Embarq acquisition. I am not certain the customer acquisition costs above and the lock in periods apply for Embarq customers. It should also be noted that Embarq also dabbles in business Voip.

You should also review Embarq's earnings report slides. They show that Embarq is losing consumer voice customers to the cable companies. Therefore it may be important for Embarq to acquire Voip customers to gain more customers for bundled services and to preserve their existing broadband customer base. When Embarq loses a voice customer to cable it risks losing a DSL and a DISH customer as well.

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BigTime
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PostPosted: Tue Aug 08, 2006 2:09 pm    Post subject: Reply with quote Back to top

That makes no sense. Embarq has a profitable but slowly declining local service in 18 states, and they would want to take over a wildly unprofitable international dot-bomb flameout, complete with crooked self-serving management, massive legal liabilities and awful press? Suddenly they could make money off of them? And sell them bundled services even though they don't operate in most of the states that Vonage does?

I don't see a staid 100 year old company based in Overland Park, Kanses doing something so stupid, especially when it has $6.8 billion in long term debt.
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BigTime
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PostPosted: Wed Aug 09, 2006 3:48 pm    Post subject: Reply with quote Back to top

Also, if buying a Voip for its customer list is a good idea, we would see it happen elsewhere. Sunrocket, eight by eight, or one of many others.

But it hasn't. "It's a takeover candidate" is the last refuge of the defenders of a dying profitless stock that has no future.

Pets.com anyone?
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scerruti
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PostPosted: Wed Aug 09, 2006 5:23 pm    Post subject: Reply with quote Back to top

If the value of the customer list is not linear to the number of customers it is obvious why a takeover of Vonage would be more valuable than a takeover of smaller Voip players at the same $/head.

Frankly when considering the takeover possibility I am factoring in the fact that Vonage may be in a death spiral and that the cost of acquiring Vonage's customers will be minimal compared with picking them up off the street. This also assumes that any legal issues with the IPO are resolved.

This means that Vonage has to survive several years, without turning the corner on profitability and making the changes necessary to solidify their position as a permanent player in worldwide telecom.

So;

Option 1: Vonage rapid death spiral results in bankruptcy. Vonage pieces picked up out of bankruptcy by telecom player (who?).

Option 2: Vonage slow painful death with continued customer base growth results in buyout at good $/customer price point.

Option 3: Vonage turns the corner and starts making a profit. Future buyout is a possibility but really can't be considered at this time.

Option 4: Vonage flames out and nobody picks up the pieces. Customers abandon other non-traditional telecommunication providers with fear of being subject to the same chaos from a Vonage flame out (loss of service, loss of number) etc.

I submit that for self preservation the industry (specifically the cable companies) will not allow number 4 and that option 2 is more likely.

Do I see buyout as a good thing for investors? No. Anyone investing in Vonage had better think that option 3 is the most likely event and be in it for the long haul. (Isn't this exactly what the prospectus said?)

---

So here is a scenario;

Vonage share price continues to fall. At some point the $/customer will approach the amount that Comcast spends to acquire new Digital Voice customers. Comcast creats a subsidiary to buy Vonage then announces that it will discontinue service in Comcast areas (area codes?) offering an easy transition to Digital Voice and picking up HSI subscribers along the way.

It offers to sell TWC customers in their region and possibly something similar in Canada.

It then strips Vonage down and uses it as a company to provide Voip service to nomadic users (non-E911 service, no local numbers? skypish? all calling plans are limited and/or metered) and wholesale virtual numbers to the cable companies. It uses Vonage's existing agreements to lower call costs into Europe and Latin America.

It also can use the IP Vonage recently acquired to step on the smaller independent players.

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BigTime
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PostPosted: Thu Aug 10, 2006 2:29 pm    Post subject: Reply with quote Back to top

scerruti, I agree with most every point here. I guess my subject line shoudl have been "ain't gonna happen except at bankruptcy or below $1 a share."

#1 and #2 are the most likely options, I would put them at 80% and 20% chances. #2 just doesn't seem that likely even if VG is at 30 cents a share. You still have to accept Vonage's legal liabilities and assume its debts. A post-bankruptcy buyout seems by far to be the most likely option.

#3 is possible only in the sense that Dennis Kucinich might be our next president, that is there is no way to conclusively prove that it is 0.0%.
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