Vonage's shrinking target market

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

To be a potential Vonage customer, you must have a high-speed home internet connection and want to have a landline phone.

Problem is, desire for a landline is increasingly evaporating. How many college students and people under 30 do you know who have a land line? Of those I know, less than a third.

The price of wireless keeps dropping, the quality of phones keeps increasing, and the number of features keeps growing.

I also know a growing number of families with family talk plans where everyone has their own phone and number for a very reasonable price. Some of them have kept their landline, most of them haven't.

Sure, 90-year-old Granny Smith is never going to cancel her landline, but she is never going to have a broadband connection either. Vonage's market is made up of the shrinking number of people who have broadband but feel the need to have a home telephone. This market is shrinking, and will get even smaller as the price of wireless service keeps dropping and the quality keeps increasing.

Posts: 1424 · Posted: Wed Jul 05, 2006 1:32 pm Post subject:

While I could have done without a land line when I was single, I can not do so married with young children. I also can't easily send and receive faxes with a mobile phone and could not use my satellite receiver with TiVo without having a landline.

Vonage brings features, like free calls to Europe and virtual numbers, that are not typically available on traditional land lines or cell phones.

In addition simple population growth can offset or eliminate the effects of a small percentage of users migrating to wireless lines.

Vonage has the ability to expand into new geographic areas and thus can counter the effect of any local reductions in the number of phone lines required.

While some of the premise behind your statement is true, the conclusion you draw (a meaningful reduction in the customer base) certainly isn't true now or in the immediate future.

FCC Trend Report 2005 wrote:

Since 1970, over 90% of households and virtually all businesses have subscribed to telephone service. Until 2000, line growth over time, averaging about 3% per year, has historically reflected growth in the population and the economy. Since then, the number of lines provided by wireline carriers has declined, likely due to some consumers substituting wireless service for wireline service, and some households eliminating second lines when they move from dial-up Internet service to broadband service.

Furthermore as Vonage develops new products and technologies it will be competing more and more with the very technologies that you claim are supplanting it. As municipal WiFi becomes available people may give up cell phones in favor of WiFi phones.

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

How many people need to make calls to Europe?

How many people who need to regularly send and receive faxes, and can't just do so from work?

I don't dispute there is a niche market for Vonage.

The fact remains, the number of people in America who have landlines is going down, and the people who are keeping their landlines are older people who don't have broadband, or even computers. Vonage's market is shrinking and viciously competitive.

A wifi phone used on a municipal wireless network? What a technical nightmare considering that cell phones work so well and are cheap and getting cheaper.

Vonage will be bankrupt long before any of these fantasy technologies become practical.

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

The need for faxes is also going down. You can cheaply send faxes for the internet, and for business use you can just scan documents and send them as PDF attachments to e-mails. That is what I usually do.

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

A landline phone is critical for me since I get spotty reception in 50% of my house. Also I wouldn't want to take a chance that I can't get good reception in an emergency.

Also, my cell phone charges have gone up every year. My average monthly charges are over $100. Iwould love anopportunity to lower these expenses.

I couldn't be happier with Vonage. I have added a softphone for my laptop and a fax number in the last 6 months. Three numbers!! and I still pay less that $40 per month!!!

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

I'm glad you are happy with Vonage. Nothing in your post, however, provides any evidence to dispute my point, which that Vonage is trying to expand into a shrinking market.

Posts: 1123 · Vonage Forum **MVM** Joined: May 26, 2005 Posts: 1123

Actually, he does have a good point. For the emergency use and spotty coverage issue. I would keep a landline, albeit limited usage, for JUST that reason alone.

Now, to counter your "Under 30" idea, that market is truly for cell phones and mobile comms. Now for 30 and up, I disagree. Most of the movers and shakers, IT professionals, all around geeks are NOT in that crowd. Some maybe, but I think most are in the 30 and over crowd. I think, in the near-term, there will always be a need for reliable comms, be it IP or otherwise. When cell technology is so good that there is NO reception issues anywhere, is when you'll see a drastic telecom shift.

Posts: 1424 · Posted: Fri Jul 07, 2006 3:34 pm Post subject:

I have already accepted your premise that land line residential phone service in the US is a shrinking market.

What I don't see is how it is relative to predications of Vonage's future. Vonage only has only 1.6 million lines out of a pool of 340,125,242 in the US alone (ITU 2005) . Even if they got one percent they would double their customer base.

Even if Vonage capped out at 10% market penetration and the market decreased by 20% they would still end up with over 20 million lines, 10 times their current size.

And that discounts the number of lines worldwide and the potential for Vonage to be the phone system in developing areas as wireless broadband is introduced.

Frankly a reduced demand for land line service actually plays into Vonage's hands. Since the primary reason for people to choose Vonage is to save money, as landline service is devalued more will switch to Vonage.

Unless you can start showing a) what size Vonage needs to have enough scale to compete against the RBOCs and b) explain why they can not achieve that scale, your shrinking market nonsense is just that, nonsense.

The biggest truth here is that Vonage subscriber growth is on an exponential curve. It is not tracking with the market growth (or decline). When Vonage's growth curve begins to level out then you can start talking about declining markets, but at that point Vonage may be big enough to survive and compete.

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

I don't understand "for emergency use and spotty coverage." Of course if cell coverage in your house is bad then you need a land line, but I don't think that is an issue for many people.

For emergencies, I also don't see what the advantage of a landline is. I have never in 9 years had a cell phone that did not work other than a battery needing to be charged. With no moving parts there is not much that can brake.

Again, my point was not that landlines are going to disappear, but that the number of people who want them is going down continiously. I recently read the number of total USA land-lines is going down 1.6% a year, even as the population of the country increases.

And while monthly bills have not really been going down, what you get for the standard $40/month or $50/month has increased dramatically in the past three years.

I agree with you that the big switch to wireless hasn't even happened yet. In my experience, what happens is that people get in the habit of using their cell phone more than their landline, and then when they move they never bother installing land service.

Posts: 1123 · Vonage Forum **MVM** Joined: May 26, 2005 Posts: 1123

I understand your point, as you put it now, but I do not agree with:

"With no moving parts there is not much that can brake."

Drop it in the toilet with some floaters. Not good.

Storytime:

I was changing my tire on my Jeep, and I set my cell on my fender. When I was done, I drove away. When I got a mile down the road, with no cell, either in the care or on the fender, I went back and checked for it. Flattened. Like a pancake. I extracted the SIM card, got a new phone, and away I went. Conversely, Vonage adapters blow up during normal use, lightning storms, power outages, and whatever else. Some of them, fart at it and it dies. It got to the point where I was afraid to look at my RT31P2 the wrong way, for fear it would croak. Technology is only good when it prevents someone with a sledgehammer from smashing it to itty bitty pieces.