TMCNet:  Vonage net loss narrows in 4th quarter, but customer retention remains a concern

[February 14, 2008]

Vonage net loss narrows in 4th quarter, but customer retention remains a concern

(Canadian Press (delayed) Via Thomson Dialog NewsEdge) NEW YORK _ Vonage Holdings Corp., which provides phone service over broadband lines, reported a narrowed fourth-quarter loss Wednesday as it scaled back on marketing and cut other costs.


Keeping customers happy is turning out to be the company's biggest challenge: three per cent of its customers cancelled service every month, a figure chief executive Jeff Citron called ``unacceptable.''

The percentage of subscribers cancelling, also known as churn, was up from 2.3 per cent in the same period a year ago.

``Most of the churn is self-inflicted as a result of the poor user experience,'' Citron said in an interview. He said the company was focused on improving customer care, and hired a new head of that department last week.

Vonage's fourth-quarter loss totalled US$11.1 million, or seven cents per share. Excluding charges for litigation and severance payments, the loss was six cents per share. Analysts polled by Thomson Financial had predicted a loss of 10 cents per share.

In last year's fourth quarter, the company lost $117.1 million, or 76 cents per share.

Revenue rose 19 per cent to $215.9 million from $181.5 million last year. Analysts were looking for $219.4 million in revenue.

Shares rose 11 cents, or 5.4 per cent, to $2.14 Wednesday.

Vonage added 56,000 net subscriber lines during the quarter to end the year at nearly 2.6 million lines. Subscribers connect phones to their broadband Internet connections through an adapter and pay $25 a month for unlimited domestic calls.

On a conference call, Citron said the company hasn't seen any direct effect of the troubles in the economy, but expects that a recession could actually help the company, since cheaper phone service is its main selling point.

The Holmdel, N.J.-based company spent $63 million on marketing, up slightly from the third quarter but down 34 per cent from a year ago. Vonage has been an aggressive advertiser online and on television, but has been trying to make its efforts more selective and effective, which appeared to be working in the fourth quarter: The marketing cost of acquiring one new subscriber line was $223, down from $306 a year ago.

Vonage also said it would restate its results for the second and third quarters of 2007. Stock compensation expenses were overstated by $14 million because of the departure of its chief executive and other personnel.

For all of 2007, Vonage lost $265 million, or $1.70 per share, down from a loss of $339 million, or $3.59 per share, in 2006. Revenue was $828 million, up 36 per cent from $607 million.

During the year, Vonage cleared some big clouds hanging over it in the shape of patent lawsuits from old-line phone companies. It settled with Verizon Communications Inc., Sprint Nextel Corp. and AT&T Inc. and a smaller technology company, paying more than $200 million total.

Business Writer Mae Anderson contributed to this report.

Copyright ? 2008 The Canadian Press

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