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Now Vonage Will Also Sell Broadband

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After a really rough 2007, Vonage (VG), the independent voice-over-IP service provider, seems to be having a better 2008. This morning the company reported its first-quarter 2008 financial results, and well, things are not bad. Not spectacular, but not bad, either.

More importantly, the company announced plans to sell Covad DSL services, rebranded as Vonage Broadband and tightly coupled with its VoIP service.

Revenues increased sequentially by 4 percent to $225 million, thanks to an increase in the number of subscribers (30,000, bringing the total up to 2.6 million) and average revenue per user to $27.85, up from $27.42 sequentially. The net loss for the quarter was about $9 million, or 6 cents a share. The only bad news: Average monthly customer churn increased to 3.3 percent in the first quarter of 2008 from 3 percent in the fourth quarter of 2007.

More importantly, the company is looking to diversify its business, and today said it’s going to start selling broadband service. It has formed a partnership with Covad, which is going to provide the DSL pipes for the new Vonage Broadband service, which will be available to both residential and small business customers. The company expects the new service to be available by the end of the year.

This is a smart, strategic move by the company, which has been punched silly by the incumbents. I’m surprised it took them so long. I think this helps Vonage overcome all the problems created by broadband providers and their networks. Now the big question is: Will consumers buy DSL service from a company with a checkered record when it comes to service and customer satisfaction?

Disclosure: Covad is a sponsor of GigaOM.

14 Responses to “Now Vonage Will Also Sell Broadband”

  1. It will definitely be convenient. I live in NJ and have had Vonage service for over a year. Honestly i haven’t had a problem. No countless calls arguing with customer service regarding billing mistakes – unknown charges. On the other hand I had Verizon for a year and i regret having switched over in 2007, since i lost a lot of money with them and can’t seem to stop receiving bills from them when i have already paid my balance. Vonage works better with Comcast than it ever did with Verizon broadband (I was always calling Vonage every time Verizon decided to update the system, because I would be left with no phone service). So having the convenience of Vonage phone service and broadband at a fraction of the price and with outstanding customer service, is great. I will never go back to Verizon and their deceptive ways of business.

  2. Tom Coseven

    Om, agree with your plateau concern. Applying your brand to a resale of resale with no control of the service quality is daft. Vonage may be better off focusing on improving the voice calling experience. Being standards-based, it should have an advantage over Skype, but it has never tried to go this direction.

    Vonage has a similar problem to Tivo. It requires a facilities operator, which competes against it with a bundled product. Tivo’s long-term hope is to provide a branded experience on top of the MSO STB. Maybe Vonage could try a similar approach. The conversion to IMS/PCMM2 would seem to favor Vonage, if they could come to a business arrangement. If Tivo can work with Comcast, why couldn’t Vonage.

  3. On the bright side you eliminate the finger pointing when trouble shooting. Instead staying on hold for 20 minutes with Vonage and then having them tell you it’s your broadband connection, then calling Covad and staying on hold for 20 minutes, and having them tell you it’s your VoIP provider. Vonage will probably just put you on hold forever why they try to figure it out.

    To be fair I only used Vonage as a pilot project for a few months several years ago. My experience with their customer service was dreadful, that may have changed in the last couple of years.

  4. @ Tom and @Partike,

    While I agree with you, I think this is a good move for Vonage needs to shore up its customer base. The subscriber base is going to plateau. the new additions are slowing down. Maybe DSL helps convince others to sign-up?

  5. Tom Coseven

    How’s Earthlink doing reselling broadband? Why do think this FVNO will turn out any better than the recent MVNO flame outs? Wouldn’t Vonage be better off to start with a simpler QoS deal with Covad, that didn’t require Vonage to bill and support low-margin dsl service?

  6. If it were not for the frivolous lawsuits by Verizon and others trying to strangle with stupid patents, Vonage would have earned even more. If they offer good broad band speeds, many will switch in a hurry.