- The Washington Times - Tuesday, August 14, 2007

NEW YORK — Battered by legal and financial troubles, Vonage Holdings Corp. has slipped from its spot as the largest provider of Internet-based phone service, overtaken by cable firm Comcast Corp.

Reporting second-quarter financial results last week, Holmdel, N.J.-based Vonage said it had slowed financial losses by cutting marketing expenses, but that also meant fewer new subscribers.

Vonage also said it had made progress with technology changes meant to sidestep a court ruling that it violated patents held by Verizon Communications Inc.

Vonage gained 57,000 customers for a total of 2.45 million in the three months ended June 30. In that period, Comcast surpassed the 3 million mark by adding 671,000 subscribers for its digital phone service.

The passing of leadership bragging rights is the latest sign of a shift in the Internet phone industry as stand-alone providers struggle and cable companies ascend by selling phone services in packages along with Internet access and TV.

Vonage, which once deluged the Internet with advertising, reduced marketing spending in the second quarter to $68 million, down from $90 million a year earlier.

The company said its net losses narrowed to $34 million (22 cents per share) down from $74 million ($1.16) for the like period last year. Excluding one-time charges, Vonage lost $18 million (12 cents).

Revenue was up 43 percent to $206 million from $144 million in last year’s second quarter.

“I believe we are turning the corner on one of the most difficult periods in Vonage’s history,” CEO Jeffrey Citron said Thursday in a conference call with analysts.

Consumers might notice Vonage’s new marketing approach, which is less about building brand awareness and more focused on recruiting subscribers, Mr. Citron said.

Vonage spent $287 to acquire each subscriber in the second quarter, up from $273 in the first three months of the year. Mr. Citron said the changed marketing strategy lowered that cost to $250 in June and July.

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