Internet telephony company Vonage is struggling to stay alive as it appeals a patent infringement suit brought against it by Verizon: a permanent stay has enabled the company to continue signing up new subscribers while the case wends its way through the court system, and in the meantime Vonage has tried to focus on lowering its losses and maybe—just maybe—earning some money. The good news is that Vonage managed to significantly reduce its losses during the second quarter, in part by spending less on advertising. The bad news is that Vonage also saw a drastic drop in new subscribers over the same period.
Overall, Vonage posted a $34 million net loss for its second quarter on $206 million in revenue, which is a considerable improvement over the $74 million it lost during the second quarter of 2006. Leaving aside one-time charges—which most analysts do—the company only lost $18 million. In part, the savings comes from scaling back its market budget to $68 million for the quarter, down from the $91 million it spent in the first quarter of 2007. However, Vonage’s costs associated with adding each new subscriber increased despite the reduced spending: the company now spends $287 to acquire each new subscriber, an increase of $14.
The drop in new subscriptions also means Vonage is no longer the largest Internet telephony provider in the United States: that title now goes to Comcast, which claims 3 million digital phone subscribers. Vonage now clams 2.45 million customers.
Vonage says it’s gotten its per-subscriber costs down to $250 for July, and claims it will be able to sustain that level of cost moving forward. The company also claims its churn rate is 2.5 percent—up from the 2.4 percent of the previous quarter but still lower than many Internet-based subscription services. Vonage is hoping to increase customer retention by extending grace periods on unpaid accounts. (Vonage might want to note that tactic didn’t exactly work for Amp’d Mobile.)
Vonage is proceeding with its appeal of the patent infringement judgement against it—and says it remains confident it will win on appeal—Vonage is also looking to assuage investors by saying it has “substantially completed the deployment” of workarounds for two of the infringed patents, and has completed development work on a workaround for the third—so, in theory, if Vonage were to be banned from using services which rely on the infringed patents, the company might have an option other than total shutdown.
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