Vonage on the skids: What should customers do?

Vonage on the skids: What should customers do?

Summary: Verizon wins an injunction over Vonage, the stock plunges (again) and customers should be worried. Does this company have any future?

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TOPICS: Verizon
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Verizon wins an injunction over Vonage, the stock plunges (again) and customers should be worried. Does this company have any future?

I'm a Vonage customer and seriously revisiting matters. Meanwhile, a Bear Stearns research note has me wondering even more about Vonage's viability. And if I'm wondering perhaps other folks are too. These customer worries are a vicious cycle. Here's the cycle: Customers steer clear of Vonage due to concerns about its viability and patent uncertainty, the company can't grow, misses even more earnings targets, runs out of cash and dies.

[poll id=62] 

Vonage is already worried. In a statement Monday, it outlined the appeals process and reaffirmed that it can "meet the needs and expectations of its over 2.2 million subscriber lines despite a ruling March 23 in Verizon's favor and a disproportionately-negative reaction from the market."

And this comment doesn't instill confidence: "To paraphrase Mark Twain, the rumors of Vonage's death have been greatly exaggerated," says Mike Snyder, Vonage's chief executive officer.  "Friday's events represented one small step in what is sure to be a long legal battle."

Why doesn't that make me confident? When companies issue statements to say they aren't dead they have problems.

In a research note, Mike McCormack of Bear Stearns downgraded Vonage to "underperform" from "peer perform." But McCormack's way-late rating change takes a back seat to his comments.

A look at some notable issues facing Vonage:

Verizon's patent infringement victory means Vonage will have to create a workaround for its service. The big question: What impact will this workaround have on service? "If the company's attempts to stay the injunction fail, we expect Vonage to immediately implement workaround solutions," says McCormack.

The workaround could result in increased subscriber churn. "We believe workarounds carry a significant degree of operational risk and could result in increased call latency, potentially impacting gross adds and churn.  Accordingly, we are lowering our second quarter 2007 gross add estimate from 404K to 383K," says McCormack.

Vonage needs more money. Combine a $58 million infringement penalty and declining business prospects and what do you get? The need to raise money. In December 2008 there's a put option on Vonage's outstanding convertible debt, says McCormack. In English that means Vonage debt holders and convert to stock and sell. When this debt converts to stock Vonage will issue more shares that no investor on Wall Street will want.


McCormack writes:

"Vonage will face a serious challenge in meeting its obligation to the convertible debt holders with scaling back on marketing/advertising expense (likely resulting in a significant slowdown in subscriber additions), or renegotiation of terms (likely resulting in massive dilution to current equity holders) seemingly the likely outcomes.  Neither of which would be supportive of investment in the shares."

To be fair, Vonage still has options, but I'm pondering my own exit. Here are some questions for Vonage customers. If Vonage is acquired what would that mean for service? If Vonage goes bankrupt what happens? Does it make sense to get VOIP from your cable provider--effectively giving it even more of your household spending? Can Skype be used as a heavy duty second office line?

I don't have the answers, but am starting to ponder what happens if Vonage unravels. If you're a Vonage customer you should think about the possibilities too.

Topic: Verizon

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21 comments
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  • Bail now!

    Only a fool stays on a sinking ship.
    DarthRidiculous
    • Stay with Vonage

      Vonage has saved me $500+ a year for the past 3 years! I'm not jumping off this ($$Money$$$) ship. Do you really think Vonage will just shut-off tomorrow?! Have you seen our legal system?? It will be years before Vonage 'may' go away.
      timothy.toth@...
  • I use Vonage

    No plans to bail here. Why would I choose to pay $10 for phone service from my Cable provider or $20 more for phone service with my Telco with no long distance calling added yet.

    If Vonage works I'd perfer to keep pocketing the savings. To bail now just mean more money out of my pocket for nothing.
    voska
  • I'm interested in hearing from Skype users...

    How is Skype when compared to Vonage? I understand that it may not be able to handle business lines, but what about personal calls as a secondary/long distance line? I have family overseas, and because of overall cost and stability, I'm looking closely at them for my long-distance needs.

    Are there any other alternatives that might be better?
    Zeppo9191
    • Used to use Skype

      but they suck with Linux, the software isn't maintained and yes I had Skype for a while and paid for the service. Software should have worked, but even with an approved headset and all, many of my calls I could be heard but couldn't hear the other person or the delay was so bad that it was like being in the 20's on a phone overseas. So I switched to Vonage! Other than some of my messages being cut short, I have had no problems with Vonage and will stick with them till the bitter end. But I have a feeling they will survive and find another way to get back on top. ]:)
      Linux User 147560
    • skype is a disaster

      I signed up with skype. Picked my phone number. To test my new phone number, I called it. Someone, not me, answered. The number was already assigned to someone else. When I attempted to contact support I found out that response times (email, website contact form) is the only support they offer) can be as long as 4 days. NOT an option. If they want to deal with real customers, they are going to have to act like a real business. I went with Vonage as the next cheapest. I am happy with the service and will not be happy if I have to switch to a local telco. Luckily, I won't have to switch to verizon (I would be a Bell South, I mean the New AT&T, customer), which would add insult to injury.

      wwf_jr
      wwf_jr
  • I use Vonage - This just accellerates the innevitable

    I use Vonage, and I am watching the progress in the courts. At this point, I'm not making immediate plans to leave Vonage; but I have been looking at my options more so that I'm ready for when I need to move onto another telecom provider.

    For quite some time, I've lived with the opinion that Vonage cannot last and I will eventually need to change. When you see a company that considers it upbeat on their financial statements to say they've lost less money in a period than in previous periods, you know there's a long-term problem. Add into that the fact that I actively try to pursuade friends and familly NOT to get Vonage because of their tech support (once you get it working, it's reliable and works great - getting it to work in the first place has been the stumbling block in my experience - if you can't trouble shoot it yourself, don't expect help from their tech support).

    The recent legal issues don't change my expectations, they just accellerate the timeline of when I will eventually need to move on to another telecom provider. Rather than being able to remain with Vonage for 2-4 more years; I now suspect that I will need to change within the next year or two.

    As for to whom I'll use - I'm still watching the available rates; but it will likely be either cable or telco based. The amusing thing to me is that I now qualify for telco rate plans which when I asked about them while I was a customer, they would say I didn't qualify.
    ac2_z
    • How do we know what will be inevitable?

      I have used Vonage for three years. I have never had any complaints and don't plan to ever stop using it.

      I signed up for Vonage after the 2004 hurricanes. My land line went dead a few days BEFORE hurricane Francis wiped out the area. My cable and cable modem worked but the Bellsouth/ATT line was dead. I got Vonage, hooked it up to the cable modem and router and was making calls immediately.

      When we evacuated for Jeanne, I took the Vonage box with me to a hotel with high speed internet service and had my phone there while we road out that tempest. When my land line came back 45 FREAKIN' DAYS LATER, I kept the Vonage line as a backup and for all long distance calls.

      If Vonage hits the skids, I am sure that they will be able to sell their primary assets including infrastructure and customer accounts. Then Vonage customers will get a chance to sign on to a new service or quit.

      I will wait for that day, if it comes. Until then, if that day comes, there is nothing else that needs to be done.
      jacarter3
    • On Tech Support

      There tech support has been some of the best I've ever dealt with. They are extremely helpful. They work through every little problem. They aren't quick to close a call. Maybe Canada has some good techs and other places don't.

      I hear ya on the Telco bonuses. Those jerks would give me the unlimited long distance for $20 a month that they were offering new customers and now I qualify because I switched to vonage. Still even with the $20 deal It's still $22 a month more expensive than Vonage so I hope Vonage lasts.
      voska
  • Buy the stock now

    To even consider that Vonage is unviable is ludicrous. Anytime a competitor sues for patent infringement or other transgressions, it is a clear signal that an emerging company is viable and to be feared. Since the company has the largest subscriber base, with a very large network, there are only two ways to view Vonage:

    1. If the company loses its patent fight completely (this is going to take years, and by that time they will beat it by using equipment from manufacturer's with the correct patent license) then the company and its 2.2 million subscibers will no doubt be acquired and the stock will go up.

    2. IF the company wins a stay and then settles while paying the ordered royalties, enough time will have elapsed and the company will emerge as the leading provider of VOIP services. This means the stock goes up.

    If you are any kind of serious investor, you should buy the stock while the company is in a bloodbath. The company is appealing and extremely viable because of the fact that they have so many subscribers. The stock (unless you were on the IPO) has an internal hedge, and that is that either way the events play themselves out, the stock will perform and the investor will make their money back. I bought significantly on Friday and have already made 15% on my money. Find a Tbill or CD or IRA that will give me that return, and I will give my money to you.
    tjr001
    • I got 23% on my mutals last year

      Very good year.

      Still I have no idea what the 23% on my statement means. All I know was I invested $24,000 and 1 year later it's $32,000.
      voska
    • Investing for the wrong reasons

      [i]Anytime a competitor sues for patent infringement or other transgressions, it is a clear signal that an emerging company is viable and to be feared[/i]

      There's a load of BS if I've ever read it. What about protecting what's yours?

      If someone invests any money in it's stock based on the fairy tale mentioned above, then reap what you sow, and we'll leave it at that...
      John Zern
    • re: buy the stock now

      Because VG is a good day trade is no reason to "own it". Yeah I bought at 3.00 and sold at 3.38 (not 15%) but that was specifically because it was a good day trade stock meaning the idiots would bail me out on Monday. It's a dead company, your only hope is if another company picks it up on it's death bed at $1.50 a share.....look at the financials, not pretty. Stupid money is starting to get the lesson it deserves by evaporating. Hey, I know, take out a second mortgage so you can buy this dog, your gonna get foreclosed anyway when google dies......
      marinsoftworks@...
  • What did you expect?

    What did any of you expect. The company has no infrastruture of it's own. They claim the cost is less, but you have to provide the transmission medium (i.e. a cable internet connection). Why didn't anyone count the cost of that connection when they were figuring how much they would save. NOTHING! That's what you saved. Any for what? Another way to make phone calls? Give me a break. This is NOT a good option for anyone. Even with the cheapest internet options you are still paying as much as mabell. It also the same as cable provided digital phone. Just get a cell and forget all the "new" options. There aren't any. Most cells have unlimited long distance and free roaming anyway. No saving anywhere you look. Vonage should die, they have nothing to offer their customers.
    LostViking
    • I don't have to get internet to get Vonage

      I already have it. Even if I do count the my current internet which I had when I was with a telco I was paying a minimum of $109 a month not counting any additional long distance charges for exceeding 500 minutes in month. I also didn't even have all the features. If I wanted them I would have paid $127 a month minimum. Now since we make many long distance calls that average long distance bill was $70 a month.

      Along comes Vonage offering me phone service for $42 a month with unlimited long distance and all the features. So I dropped my Telco service and go with the cable TV + cable internet bundle so my Internet is $32 a month. That's $74 a month for Vonage vs $179 a month I was paying for my telco. On top of that I'm getting all the features like call display, call waiting, voicemail, threeway calling and more for nothing extra where I'd have to pay the telco and additional $18 to get all that. Now you're telling me a I saved nothing? I don't think you have clue what you're ranting about.

      I could also go with Cable companies digital phone service which offers everything Vonage does for an addition $12 month but why pay more for the same thing?

      As for Cellphones, they sure aren't cheaper than Vonage and they are more expensive than basic Telco service if you plan to use them like you do with your home phone.
      voska
    • Flawed analysis

      Your analysis is fatally flawed. You claim that the cost of the internet connection should be included when determining the true savings versus traditional telcos. This is ONLY true if the internet service was acquired for the purpose of using it with the VoIP service. Personally, I had a high speed internet connection before I added Vonage - I stayed with the same internet service after getting Vonage - and I'll likely remain with that service if/when I leave Vonage.

      My guess is that, for the majority of VoIP users out there (Vonage or otherwise), their internet service choice is similar. They have high speed internet already - it shouldn't be viewed as part of an additional cost for getting VoIP for that very reason.
      ac2_z
    • wtf ???

      Either you work for the telcos or you are insane. Vonage is $30 per month, and I can call Canada, Europe etc. Please back up what you state or start taking your meds. You need help.
      sirsurfalot@...
  • I ordered my SunRocket kit on Friday

    Even without the lawsuit, SunRocket was offering free VoIP hardware and a free 5.8 Ghz phone for $199 per year ($209 lock, stock, and barrell). That's tough to beat. The best Vonage could do after being a loyal customer was $239 plus a bunch of bogus monthly "tax" charges. I have co-workers who are using SunRocket and they are happy with it. Lingo, who I used to be with, is also offering a $199 package so if SunRocket does not work out I can give them another try. As the old saying goes, "There are lots of fish in the ocean".
    msmitchel
  • product and customer loyalty

    In the old "telco" days, we were held hostage to a monopoly of telcos who enjoyed many years of overcharging and poor customer service. Enter stage left, a small company called Vonage. I signed up immediately, and have saved a minimum of $1000 US per year on my telephone bill. With the money I "saved" I purchased cell phones for my wife, son and daughter. I am still ahead of the game, as it were. We still have our Vonage landline and will keep it as long as possible. Screw the telcos and Comcast with their lousy quality VOIP alternatives. I was paying an average of $100 to $150 per month with those vampires. In case you are wondering, I do not work for Vonage or it's affiliates. I do not own their stock. I just appreciate the price and quality of their service.
    sirsurfalot@...
  • unlimited free long distance on cells?

    Yeah, if it's on weekends, or after 9 PM, 7PM for sprint and before 6 am. Unfortunately, between 6 am and 9 pm, most companies now offer 450 minutes, although one or two will go as high as 900 minutes a month. If you are like me and all of your family, and most of your friends and business contacts are a long distance call away, those minutes can burn up very very quickly. We won't even get into the free roaming. . .
    boilers78