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Are VoIP Service Providers Making a Comeback?

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Jon Arnold, unlike many of us naysayers has become increasingly bullish on competitive voice service providers (CVSPs) such as Vonage and Telio, and predicts sunny skies for them. Since then several others have joined the conversation. Moshe Maeir of Flat Planet Phone Co. wrote to us and pointed to one of his posts, arguing that the numbers make CVSP a great business.

Lifeblog postThat is, if you don’t take into account the marketing costs, which even Arnold acknowledges, remain a problem for Vonage. Take for instance this recent promotion we received from Vonage. They want us to come back to service and they would give us two months for free. Or about a $50 discount, so the annual revenues are already down to about $265 per customer. Or the recent promotion Vonage is running with Circuit City, where they are giving away $200 gift certificate applicable towards a Vonage service.

The slowing subscriber numbers, and increased competition from the bigger, well-funded rivals such as Cable operators and phone companies, is our big concern, but hey that’s just us! We still remain highly skeptical of the current model where the competing on price.

The sharp increase in the numbers of CVSPs hitting the dirt might have something to do with our skepticism. As one of our readers very succinctly wrote, “Just like in the Long Distance industry, the cost of customer acquisition is too high and the retention is not there.”

The post first appeared as part of GigaOM Weekly Newsletter emailed on November 26, 2006.

11 Responses to “Are VoIP Service Providers Making a Comeback?”

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  2. Anonymous

    Following a law suit from Verizon last year, Vonage was found guilty of infringement with regards to Verizon patents, and is now liable to pay $58 million. The case was about the way in which Vonage connects its VoIP network to the PSTN, and also about its call forwarding and voicemail techniques.
    What’s worse for Vonage is that Verizon has also requested the jury that Vonage be denied the right to allow its users to connect to the PSTN. If this request is accepted, Vonage users will be able to make calls only to other Vonage users! That would drag Vonage from the best to one of the worst VoIP providers! The verdict will fall on March 23rd. Let’s hope something that drastic

  3. anonymous

    I had a bad experience with vonage and customer support guys. I had some pblms in the poor quality of calls mine calls just go to the voicemail and when i talk with the support guys they just hold me for 5-10 minutes. vonage customer support sucks! Anybody never use any voip service from vonage.

  4. This is for all ppl have a tringotel connection bcoz they have aligned with Sunrocket and the voice quality is awesome and the shipping charges are absoluely free.That’s cool.

    U Guys rock!

  5. I missed to state BIG pain with Vonage. When i called for initially to signup it took less than a 30 secs to get a Rep. After 3 months staying with them It took more than 30 REAL mins to get a Rep. And she says it is my Cox cable service that is not good.
    Vonage : I am using same Cox and AT&T Callvantage is working just fine.
    I have no idea how Vonage is thinking to servive with these offers.

  6. Stay away from Vonage.
    I had really bad connection calls used to break, calls to India were really bad.
    When called them to cancel the services they charged me for the TA which i offered to ship them back they said i should keep it and they charged me. They charged me termination fee etc..
    After $140/- i am out of them and got AT&T callvantage. I have no problem with their ATT VOIP.

  7. The thing i dont like about vonage when i tried it was everyone has a different experience. Due to what kind of internet connection you have and how fast and reliable, it changes your phone quality. I find bussiness VOIP to be more stable and has better sound waulity than home user VOIP.Thats just my opinion. So if vonage is going to offer 50 dollars off for me to come back, I hope they improved thier product to work with a variety of internet services.
    Elly Drey

  8. Om hits the nail on the head. “That is, if you don’t take into account the marketing costs”.

    That is exactly what I wrote in my post that Om mentions above “All this is great if you have the customers or a cheap way of acquiring them. But if you are Vonage and you spend $1m a day (!!!) on advertising and have a 2.6% monthly churn – you are in a problem.”

    So who will be the winners? At the end of the day – either you are a cable company or you must have some great features!