It seemed real safe to pile on Vonage the past few months. With the parade of patent lawsuits and the black eye of VoIP service disruptions, many analysts (myself included) weren’t giving them much of a shot to survive. With all of those issues, it seems rather remarkable that Vonage’s latest quarterly report reveals net subscriber additions of 78K (compared to 57K during the same period last year), and a grand total of 2.5 million subscribers. By my estimation that makes Vonage a top 10 U.S. “phone” company, in terms of access lines.
I certainly would not have predicted that Vonage could add 21K more subscribers in the third quarter of 2007 than they did comparably in the third quarter of 2006. Given all of the negative press of the patent lawsuits and negative VoIP news (Skype outage and SunRocket demise), you would expect Vonage to have real trouble beating previous numbers. If they can do this well during times of trouble, how well will they do with the patent troubles behind them? Vonage seems to have gained focus on operational success and shed the “hype” machine factor. They spent 32% ($62 million total spent) less on marketing during third quarter 2007 than a year ago, and marketing costnow represents one third of their total revenue (compared to 56% a year ago). I’m certainly not prepared to suggest Vonage has totally escaped all their troubles. They have a long way to go before they are a profitable telecom service provider. But they have weathered a storm, and probably have gained some confidence as a result. Their impact on the competitive telecom environment is not over.