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Question of the Day
Cable companies have an advantage by controlling the networks that carry their voice services, unlike independent providers that “piggyback” on existing broadband connections, Mr. Williams said.
Independents “have little or no control over service quality,” he said. “It’s delivered as a best effort.”
Vonage Holdings Corp. led the charge to provide Internet phone service in 2002.
While the Holmdel, N.J., company remains the stand-alone industry leader with more than 2.4 million subscribers, its future is uncertain as it endures a financial and legal pummeling.
Vonage stock never recovered after a disastrous initial public offering last year, with shares tumbling from an opening price of $17 to around $2.20 today. The Vonage chief executive who took charge soon before the IPO resigned in April.
Earlier this year, a jury found that Vonage infringed on technology patents related to Internet calling and awarded millions and future royalties to New York-based Verizon Communications Inc.
Vonage’s appeal is pending.
“Vonage and SunRocket went down the route of simply being cheaper,” said Blair Levin, an analyst with the Stifel, Nicolaus & Co. investment firm. He said Vonage is a historically important company but it does not have a “defensible asset.”
“If the Bells and cable decide to lower the price for voice, which is now just part of the bundle they are offering, it’s going to be difficult for these independent voice folks to really make a go of it,” Mr. Levin said.
Mr. Williams of Jupiter Research said there is little hope for independent providers because by competing on price “they have driven the margins down so far that there is very little there to work with.”
Vonage said in April that it would cut back on marketing costs. It had been spending $275 for each new subscriber.
Vonage might be sold or go out of business, but because it is a public company and much larger than SunRocket, its millions of customers are not likely to be suddenly cut off without time to switch, Mr. Kagan said.
Despite the industry’s troubles, new players still emerge.
The company, which has $27 million in venture capital backing, is using a technology similar to peer-to-peer computing networks, with customer Ooma boxes playing a role in routing calls across the country.
By Michael P. Orsi
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