Vonage, say hello to Grave Dancers

15 Comments

Charter Communications, the St. Louis, Mo.-based cable service provider, is not-so-subtly getting ready for a dance…. on Vonage’s grave. It has launched a promotion hoping to lure worried Vonage customers to switch to its VoIP service. Charter, that currently boasts about 500,000 phone customers, is supposedly a friend of Charter Vonage, and has been trialing Vonage as part of a special $45 voice-and-data bundle.

If other cable providers started following Charter’s example, and offered sops to Vonage customers to switch, Vonage would find itself in deep trouble. The Holmdel, NJ-based Vonage is locked in a vicious patent fight with Verizon that has left it black-and-blue.

With Vonage market capitalization having fallen below $500 million, cable operators should pool their resources, and make an offer for Vonage’s 2.2 million customers. Clearly $700-to-$800 per subscriber – about $1.54 billion-to-$1.6 billion at $700-to-$800 times 2.2 million subscribers – is too high a price. At $250-to-$300 per subscriber, however, cable operators should seriously consider a bid.

At those levels, the company will be valued at $550 million-to-$660 million, which is a premium over the current stock price, but still be cheaper than spending millions on advertising and customer sign-ups. The cable operators can then divvy up the spoils amongst themselves depending upon the region of service, and perhaps pick up a few broadband subscribers in the process. Dividing the spoils is a common practice in the cable business.

Of course, they can wait and watch Vonage get pummeled, and fall further as it gets further embroiled in the legal mess with Verizon. Then we would need to change the headline to one that is inspired by a James Hadley Chase paperback!

15 Comments

Fred

Clay Perrault failed miserably in Panama. Don’t believe anything he says or tries to pitch to you. His company, PanAmerican Wireless, SA, accepted money from us to provide a solid network infrastructure with data and VOIP connectivity solutions. Needless to say, they never completed the work and services that we paid them to, which is basically stealing. He also burned a few other companies here such as the Panama Railroad who ended up kicking him out of his offices located on thier property.

Jim

This whole patent-infringement (AKA possible doom of Vonage) is the straw that broke the camel’s back for me.

I’ve been a customer of Vonage for about a year and the quality of the service sucks. Poor quality of audio, frequent outages/technical issues, etc. have soured me on Vonage.

Now, I have an excuse to get off my lazy butt and switch (probably to AT&T).

RandomThoughts

OK, according to the LightReading article, Charter will only be targeting Vonage customers that are within their footprint.

Maybe calls for a cable war being started are premature, but it will happen as soon as telecom begins making inroads with their video offerings.

drew

RandomThoughts guy sort of has the right idea, but I suspect the Charter move is a simple cherry pick / re-direct of VoIP ad budgets. Its smart.

The cableco’s have a pretty delicate infrastructure when it comes to their VoIP deployments and they don’t currently support out of network customers. I also don’t think this is the first shot across the bow for CableCo’s to all of a sudden starting to compete with themselves. There are strict franchising rules for MSOs and its complicated to offer services out of network.

Plus competition will only erode the obvious price fixing Cable Operators engage in with their pricing schemes. The margins on VoIP and High Speed Data are very high; and what people don’t realize is that those products limit the quality and diversity of regular cable tv programming since bandwidth must be allocated to those services.

That said, Verizon should realize that forcing Vonages customers off the system will most likely force them to Cable provided VoIP. This is going to make it that much harder for Vz or AT&T to migrate those customers over to the FTTx networks down the road.

The Cable operators would love nothing more than to see Vonage go down in flames since Vonage is probably 2nd or 3rd on the list of most bandwith intensive applications riding for “free” on thier networks behing BitTorrent and other P2P networks.

Somewhere in this argument lies a network neutrality issue, but its hidden behind all of the obvious patent and legal issues.

Lastly, its not clear the cable operators are going to side-step this whole patent issue either. Its smart for Vz to go after poor & unsophisticated Vonage. Get an injunction and case law in the books then go after the big dogs. I’m sure all the major cable operators have their counsel carefully studying their liability issues.

Drew

RandomThoughts

Om, why buy the cow when the milk will be free?

Charter’s move is interesting, but not unexpected. With voice being IP, it really doesn’t matter where the customer is located.

This is the first step, a really big first step. A MSO is moving out of their footprint. The cable wars have begun. Why wouldn’t Charter target Cox or Time Warner Cables customers next? The reason they have not done so in the past was because they didn’t want to get into a price war. Charter is the first mover here, look for others to quickly jump in. I knew that the cable wars would begin, but I didn’t think it would begin this quickly.

As for Verizon going after others, they might try to pick off some of the other pure plays, but they won’t move against a cable company. A David vs. Goliath fight is fine, but who wants to get into the ring with another Goliath?

G

OM – Vonage is seems to be sitting on some cash. At least on Yahoo Finance they show a few shillings in the bank (about $554 Million). Based on that number the stock price is below the cash value. Can you ask around and verify? Of course Bloomerberg would be a better source.

Charlie Sierra

When will the lawyers begin to go after Vonage’s IPO Bankers?

With Demoncrats in DC and an election cycle in desperate need of stories, especially about the how the little guy always gets the raw deal, this should be a popular news angle. No?

Clay Perreault

Mr Malik:

Whats to stop the cable company’s from being on the next “hit list” with Verizon? The worrisome issue here is that, although Vonage could arguably be the largest competitor to Verizon, the cablcos would definitely be next in line. Until this patent mess is cleaned up in the US I see continued hacking at the VoIP business until nobody is left standing in this space.

The patents in question describe the use of an Internet Web browser to control voice mail and also to control call direction/ processing. Both features pretty core to EVERY VoIP operator.

I disagree with with your article in the fact that the shareholders in a cableco may be further endangered by sticking their head up and being noticed in this time of patent strife.

BTW, I’ve always enjoyed your articles and look forward to your comments.

Clay S Perreault
Founder, Digifonica International
Founder, Galaxy Telecom Ltd.

Duncan

I see a slight flaw in the reasoning that the US based cable carriers should buy out Vonage’s customers – how will they provide service to non-USA customers without Vonage’s network + devices?

Vonage has been, for me, absolutely brilliant, because it allows me to have a UK telephone number, with a virtual presence in the USA. Friends of mine in the US can thus call me as if it was either a local call, or part of their long-distance package. I can’t see the cable companies even bothering to keep the international userbase of Vonage – they certainly can’t sell them Internet access.

Steve Morsa

That’s a great idea, Om; buy ’em up an split the spoils…o’course, grave plots are always cheaper than regular real estate…even when it’s been “crippled Vonage” priced.

Rex Dixon

QUOTE: Charter, that currently boasts about 500,000 phone customers, is supposedly a friend of Charter and has been trialing Vonage as part of a special $45 voice-and-data bundle.

Huh? Charter a friend of Charter?

btw — Charter sucks! :) I’m on Dish Network and DSL. Couldn’t be happier.

Rex

Comments are closed.