Vonage Hits the Shelves

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While the cable industry enters a staged rollout of VoIP services, Vonage Holdings Corp. — the company that arguably put the technology on the map — continues to expand feature sets and marketing initiatives in hopes of elevating to 1 million subscribers by next summer.

With 260,000 subscribers and a monthly addition rate of 30,000, the company sees no slowdown coming.

Vonage has introduced tiered packages, plans a voice-over-Internet protocol launch in the United Kingdom this year and has placed increased emphasis on retail.

BIG CHAINS

“The added focus for 2004 is that we are in a lot of retail stores,” said executive vice president of product development Lou Holder, citing arrangements with Best Buy, RadioShack, Circuit City and Staples that have helped Vonage expand its base.

Until this summer, the company sold its service through the Internet. “But some customers aren’t comfortable buying things on the Web,” Holder said. “We’re seeing a different kind of customer” at retail.

He estimated that Vonage has added 10,000 subscribers through retail.

The addition of a Linksys product that debuted Sept. 1 in retail stores should generate more growth for the service that now covers 179 area codes and 100 U.S. markets, he said.

Linksys products come in two forms: as a standalone device or a cable modem with a built-in router.

Vonage has a complex relationship with the cable industry. Several smaller cable companies, including Armstrong Utilities and Mid-Hudson Cablevision, have contracted with Vonage as an outside vendor to provide VoIP service.

“They all do very well,” Holder said. “They are able to acquire customers a lot cheaper than us. They have access to media and can add subscribers very quickly.”

But the large MSOs have stayed away, preferring to launch their own service.

“They are really very cautious,” he said. “They want to see you grow and a lot have started efforts on their own.

“By us being there in their face, it slows down their overall launch and gives us a little more lead,” he said. “The tier-two companies are really interested in what we’re doing.”

After that initial momentum, though, things have slowed a bit as those cable companies shifted focus to other new-product launches, including video-on-demand.

Vonage, of course, requires a broadband connection, so every new Vonage subscriber on a cable-modem platform is one fewer potential customer for cable VoIP service. The telcos also are making plans to offer IP telephony.

ADDING FEATURES

The key to staying competitive is expanding service and adding new features, he said.

“We have added a 'soft’ phone device,” he said, in which “software runs on a PC and makes the PC into a telephone.”

“We saw as a big market the sales person that travels a lot,” he said. “People run the soft client on their laptop. They can receive Vonage calls on their laptop in their hotel.

“That led us to pursue another device, a portable phone that uses [wireless fidelity] connectivity in the home or office.”

Vonage is also looking at video applications.

Holder acknowledges Vonage could face pricing pressure. “You can add more features at the same price, or just reduce the price,” he said.

Currently, Vonage has three price tiers. For $15 a month, subscribers receive 500 minutes of calling time.

There’s also a $25-per-month unlimited local calling tier and a $30 unlimited “everywhere” plan. Holder said more than half of subscribers take the highest priced service.

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