Vonage...with no strings attached?

Posted by Paul Glazowski on February 22nd, 2007

Vonage, the leading VoIP-only telecommunications provider in the US, hasn’t looked well since the investor-led mutiny following the company’s disastrous IPO days. Headlines ran rampantly across the business sections of newspapers, news magazines, tech publications, and telecom industry papers about Vonage’s unwillingness to let shareholders go, even while a class action lawsuit loomed over its head claiming the dissemination of misleading information prior to the opening bell.

The latest information to be released from the company boardroom shows an attempt to right wrongs and put its stock on course for good days, but whispers of the phrase “crap shoot” are being heard among the groups of analysts that follow telecom trends, from the Valley to the Street. We’re going to have to follow the herd on this one, too. Why? Because Vonage hopes its saving grace will be in the form of wireless service.

Don’t get us wrong. We love VoIP. It’s fantastic. Skype is a godsend for people fed up with their big long distance bills and a decent amount of bandwidth to spare. If we could have the magic of Internet-bound calls wherever we go, that’d be super, really. But that’s not what Vonage wants to do, nor can it even attempt such a feat with its budgetary constraints weighing it down.

To try get out of the red, Vonage will repackage Earthlink Muni – a municipal WiFi program which has thus far made some headway in establishing blanket coverage in some of the country’s major metropolitan areas with hopes to ultimately serve as many areas nationwide as possible – to include Vonage’s trademark VoIP product. Om Malik summed this move up best on his blog. He wrote that it is simply “a desperate move by a desperate company.”

Vonage has done two things wrong. One, it has failed to deliver marketing that is convincing. It hasn’t effectively explained its product. (Skype does a wonderful job in this area, by the way.) Two, it has delivered pricing too close to traditional telecoms’ own voice plans. If you ask me, I would drop the basic 500-minute plan by $5 and deliver unlimited calling for $15 (business plans would be discounted as well). If the company is smart about marketing from here on out, it could bring in the necessary returns to stop it falling to Chapter 7 or 13. Undoubtedly the biggest obstacle standing in its drive toward healthy growth is the cost of attracting each of its customers. It has wasted far too much cash on uninformative and unappealing advertisements and too little on making its product enticing.

The US’s wireless networks won’t look kindly on Vonage’s new move either. The company plans to introduce hybrid cellular-WiFi handsets to customers in the second half of 2007, earlier than Verizon, Cingular, Sprint and T-Mobile wish to explore similar moves.

But even with the debut of Vonage Wireless, the company’s straits will likely prove no less dire than they currently amount to. In our view, cost cutting is hardly logical, as is deepening the company’s debt with the new initiative. Until hybrid phones are a feasible alternative to the devices we’re familiar with and really do offer seamless transfer between wireless networks and WiFi hotspots, the average user will not choose to make the switch. Meanwhile, WiMax still remains “over the horizon”, but has yet to be passed off as altogether impractical. Plenty in the business still expect WiMax to replace wired high-speed data connectivity, and VoIP will be a perfect fit when major progress on this front is made.

In all, VOIP is certainly here to stay, and its proponents will continue to extend its reach, but we definitely can’t say the same about the long-term security of Vonage, particularly when taking into account its latest blunder-to-be.

Comments

Post a comment