Vonage, the VoIP service provider pioneer, has apparently been given a lifeline by some unnamed financiers. Vonage has $253 million in debt due this coming December, and it’s widely believed that it could be a crippling blow to the company if not refinanced. Vonage reports that it has a letter of intent for new private debt financing for $215 million, which should conceivably be enough to allow Vonage to continue as a going concern. Vonage is not completely out of dangerous water yet. Even its own press release says, “The letter of intent is a proposal that will be used as a basis for financing and does not constitute a commitment.” The terms of the debt placement will be under great scrutiny as well. If they are too onereous, Vonage may not be able to effectively operate under them.
Vonage’s fate, whichever way it ends up, will have serious competitive implications. Should it go out of business, there will be over 2.5 million VoIP subscribers up for grabs, along with serious public relations damage to remaining pure play VoIP service providers. Should they remain in business, they will continue to impact the competitive landscape with their assault (albeit less aggressive) on incumbent phone and cable companies, offering a legitimate voice alternative.
