“We have no intention of recreating the PSTN,” said John Rego, CFO of Vonage, speaking at the Lehman Brothers’ Fifth Annual T3 Conference in New York. Rego said Vonage’s network is based on SIP, which is “robust, scalable and agnostic to voice, video or data… giving you a good idea of where we intend to go in the future.” The business model is truly disruptive, he said, because it is broadband agnostic and is oblivious to physical location.
Vonage currently claims 70% of the broadband telephony market in the U.S., which he observed is still small compared to other markets internationally. Vonage is currently serving over 76,000 access lines and is adding about 2,600 per week. The company recently completed its 100 millionth phone call, still small by the scale of an ILEC, but significant for a VoIP provider. He noted that there is a potential market of 180 million residential phone lines in the country.
In Q1, Vonage plans to enter the Canadian market, followed by the U.K. and Switzerland. The company’s flat rate pricing, which is currently available for U.S. and Canada, will likely be extended to Europe and later worldwide. Vonage is currently supporting local number portability and half of its customers are bringing the numbers with them when they join the service.
Rego also highlighted the company’s integrated marketing campaign, which includes advertising on TV, radio and top Internet sites. The company has also launched a retail push through Amazon, Best Buy, Circuit City and through partnerships with Earthlink, cable operators and others.
For less than $15 million investment, Vonage built-out the infrastructure to reach the top 100 U.S. media markets, whereas typical CLECs were spending about $10 million per market.
As for regulatory “red herrings,” Vonage considers itself to be a provider of interstate “information services” as defined by the FCC and is therefore not required to be certified as a common carrier, said Rego. He also noted that Vonage pays into the Universal Service Fund as well as several state mandated funds, can comply with CALEA requirements, and pays access fees when terminating calls over the PSTN. On e-911 issues, Vonage is currently working with NENA, Intrado and several states to develop a broadband telephony solution. Rega believes the FCC will issue a ruling within a year that either declares VoIP as an unregulated service or adopts a “light touch” approach.
Rego predicts the company will be profitable by Q2. Churn is currently at 2.5% for new customers, with no contract required. The current infrastructure could support up to 250,000 users but could be scaled quickly as needed. Vonage-to-Vonage calls represent about 2% of traffic. As for new competition for ILECs, IXCs and cable operators, Rego said Vonage welcomes the additional visibility provided to VoIP services.
http://www.vonage.com
- In November 2003, Vonage closed $35.0 million in new financing round led by New Enterprise Associates (NEA), which invested $12 million. The money will be used to further the build out of the service, enhance marketing programs and develop new offerings. Vonage senior management participated in the round; capital raised to date by the company now totals $65.3 million.
