| Type | Public (NYSE: VG) NASDAQ: VG |
|---|---|
| Industry | Communications services |
| Founded | Edison, New Jersey, U.S. (January 2001) |
| Headquarters | Holmdel Township, New Jersey, U.S. |
| Key people | Marc P. Lefar; CEO Barry Rowan; CFO Louis Mamakos; CTO |
| Products | Phone over Internet (VOIP) adapter and service subscription |
| Revenue | US$885 million (2010)[1] |
| Net income | US$47 million (2010)[1] |
| Employees | 1600+ worldwide (06/2008) |
| Website | www.vonage.com |
Vonage NYSE: VG ( /ˈvɑːnɪdʒ/) is a publicly held commercial voice over IP (VoIP) network and SIP company that provides telephone service via a broadband connection. The company's name is a play on their motto "Voice-Over-Net-AGE".
The company promotes itself as "Vonage the Broadband Phone Company"[2] in the U.S. Founded in Edison, New Jersey, Vonage is now located in Holmdel Township, New Jersey.[3] The company first offered subscription service throughout the United States, then expanded into Canada in 2004 and the United Kingdom in 2005. As of March 2010, Vonage held nearly 2.4 million subscriber lines.[4]
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In operation since 2001, Vonage went public on May 24, 2006 at a price of $17.00 per share, and dropped 23.5% to close at $13.00 the next day.[5]
In the period before the initial public offering (IPO), Vonage solicited its existing customer base via automated phone call announcements and e-mails with an offer to buy shares of the IPO (usually only large institutional investors such as banks are able to buy shares of an IPO).[6] The price fell 12.7% in one day to close at $14.85 on the New York Stock Exchange, the worst trading day for any IPO in 2006 up to that point. The IPO raised $531 million for the company. Vonage's post-IPO handling of individual pre-IPO investors resulted in a class-action lawsuit.[7] As of 2009, Vonage announced that an agreement in principle had been reached to settle with IPO investors.[8] The firms underwriting the IPO, Citigroup, UBS, and Deutsche Bank, were fined and ordered to reimburse customers for "failure to adequately supervise communications" with investors.[9] NYSE regulators went so far as to investigate possible short-selling.[10]
The IPO and its aftermath earned Vonage a Business 2.0 Magazine award as 14th of 101 Dumbest Moments in Business for 2006.[11]
In 2006, in preparation for Vonage's IPO, Michael Snyder, former president of ADT Security Services replaced Vonage co-founder Jeffrey A. Citron as CEO.[12][13] In 2007, in a restructuring effort to reduce ongoing net losses in the face of double-digit stock price slips and patent infringement issues, Snyder resigned, and Citron returned as Interim CEO.[14] The company announced plans for 10% (180) layoffs, as it secured $215 million in financing.[15]
In 2008, with Vonage stock at $1.42, Citron stepped aside as Marc Lefar, former CMO of Cingular Wireless, became CEO based on his performance in multiplying customer base and reducing churn rate. Citron continued as board Chairman.[16] On July 9, 2009, Vonage stock dipped to $0.31, but an August price surge associated with announcements for a dialing plan and a portable phone app[17] raised the stock to between $1 and $2 (April 2010.)[18]
On June 19, 2006, Verizon filed a lawsuit charging that Vonage infringed on five of Verizon's patents related to its VoIP service.[19] The patents describe technology for completing phone calls between VoIP users and people using phones on the traditional public switched network, authenticating VoIP callers, validating VoIP callers' accounts, fraud protection, providing enhanced features, using Wi-Fi handsets with VoIP services, and monitoring VoIP caller usage.
On March 8, 2007 a jury found Vonage guilty of infringing three patents held by Verizon, and not guilty of infringing two other patents. The jury ordered Vonage to pay US$58 million, and a royalty rate of 5.5% of every sale to a Vonage customer, back to Verizon. Subsequent to this jury award, there were a series of appeals and intermediate stays on payment. Vonage was punitively ordered by the court to stop signing up new customers;[20] this was reversed on appeal three weeks later.[21] On November 19, 2007 Vonage agreed to pay ~$120 million in damages[22] to Verizon.
The Verizon patents brought to trial were the Voit[23] patents: US 6430275, US 6137869, US 6104711, US 6282574, the Curry[24] patent US 6359880, and the Gardell[25] patents: US 6298062, US 6128304. The successful prosecution of Voit patents against Vonage led to their reuse by Verizon in another suit against Cox Communications initiated in January 2008,[26] as well as one against Charter Communications in February 2008.[27]
The Verizon suit was the first but not the only patent lawsuit successfully prosecuted against Vonage. By December 26, 2007, Vonage was ordered to pay $80 million to Sprint Nextel[28] and $39 million to AT&T.[29] Another lawsuit with Nortel resulted in no monetary damages.[30]
Vonage had its genesis in a company called Min-X.com ("The Minute Exchange"). Jeff Pulver, noted VoIP proponent and owner of the successful VON conferences, incubated Min-X.com at his offices in Melville, NY on Long Island between December 1999 and December 2000. Based on his experience at the bond trading giant, Cantor Fitzgerald, Pulver knew that any commoditized product is easily traded in a market. The year was 1999 and Enron was at the zenith of its global trading business (Enron at this point even had a bandwidth trading exchange). There were a significant number of regional IP telephony companies spread across the globe with large amounts of gateway capacity that could be efficiently brokered for profit. Unlike Enron's bandwidth trading market, Pulver's market would be a market where IP Telephony minutes and capacity could be traded in both a spot and futures contracts. By summer of 2000, Min-X.com had about six employees who were either technologists or former bond or stock traders. There was a business plan and initial "trading platform" prototypes built on Cisco, Clarent and VocalTec IP Telephony equipment.
Jeffrey Citron, former CEO and majority shareholder at Datek Online and also with net worth of $750 million, was the first major investor in Min-X/Vonage. He had been barred from stock trading by the SEC for life, but was still seeking angel investor opportunities.[31]
Daniel Berninger, noted VoIP pundit and analyst with Tier 1 Research, was working for Pulver in 2000, and was helping Pulver bootstrap various new businesses including Min-X, Arieta and Free World Dialup. Dan's wife, an executive recruiter with a deep book, knew of Citron's availability and placed the call to him. Citron's first meeting with Pulver on the topic of Min-X happened in August 2000. Citron was chauffeured to the meeting in Melville in his own helicopter. Pulver gave the pitch, while Citron, seeking new investment wins, was intrigued by the idea of starting a new and (more importantly) unregulated marketplace. Citron immediately brought in his trusted banker, Carlos Bhola. Bhola was one of Frank Quattrone's disciples from the Internet banking group at CSFB and by 2000, Bhola had formed his own boutique investment and advisory group. By October 2000, a deal was struck and Citron and Bhola made an initial investment of $1 million, in addition to 9 other $1 million dollar investments in several other early stage firms.[32]
Bhola and his team quickly got to work building a better business plan and revenue model for Min-X to raise more money. Bhola's first conclusion was that an independent IP telephony minute trading marketplace was not going to stand on its own. Wholesale minute prices are priced in pennies. Brokerage commissions, as a percentage of the minute price would generate commissions in the fraction of a cent. Assuming that every regional IP telephony company joined the Min-X trading marketplace, the combined total of all the commissions generated on all the traded minutes from all the companies would not generate an attractive investment return. This calculation was true, even as growth in IP telephony was factored in. What was needed in this minute marketplace to spark exponential growth was a massive consumer of capacity who would perpetually buy minutes. "Min-X Enterprise Services," a company focused on selling IP voice services was born. Bhola and team, reran the numbers on the two new businesses. By November 2000, it became obvious that the really profitable business was "Min-X Enterprise Services" and not the Min-X marketplace. Citron and Bhola then invested an additional $10 million, Citron took the title of CEO, Bhola took the title of President, and the efforts of all employees were refocused on building "Min-X Enterprise Services."
In a December 2000 meeting, Citron and Bhola unveiled a new name for the new entity; "Vonage". The name borrows Pulver's "VON" acronym for "Voice on the Net" and the temporal meaning of the word "age", combining to form "Vonage", which would herald the start of a new era for consumer communications services (the age of VON). In January 2001, after moving to 10,000 square feet (930 m2) of refurbished office space in the former Revlon building in Edison, NJ, Vonage was incorporated and commenced its ambitious plan.[33]
Several important technical strides had been achieved by this time, notably the avoidance of intra-LATA fees. LATAs are telecom regions that were created by the FCC upon the 1984 breakup of AT&T, and are subdivisions of states (or in some cases entire states) that carriers use to route calls. While long distance fees were rapidly falling across the continental US at the time, fees within states were still artificially high. Citron himself found it frustrating that the high fees for a call to his own sister in in another part of New Jersey were unavoidable. With VOIP, Vonage was able to sidestep those fees. For the New Jersey to New Jersey example above, Vonage would actually route the call to servers located in California, essentially bouncing the call across the country and back to create call nexus in another state, thereby avoiding the intra-LATA fees. Because each call traveled for most of its journey over the public internet, Vonage accrued no extra costs for the extra miles traveled. Additionally, Vonage's infrastructure improved with the acquisition of key employees Yuk Ming Lam (of Lucent) and Louis Holder (of Cantor Fitzgerald) in their technical engineering group, with call quality evolving to more resemble landline POTS calls.
The initial results from minute arbitrage were not sufficient to grow the company to the next level, and a private label strategy was conceived by the management team. They elected to offer their network to cable companies and MSOs, and provide VOIP infrastratucture and transmission for a portion of cable revenues. Michael Porta was brought in from New York University Medical Center to run Human Resources. Philip Giordano, a long time cable industry insider, was hired from Newhouse Media, a cable television and media company. Liberato DiCicco was hired from Ameritrade (formerly Datek) to run security and local operations. Michael Centrella (former CEO of Merlot Networks) was hired to run Sales. Mona Shah (Datek) ran company operations, including the network and NOC. Kenneth Laputka was hired to run Marketing.
Private label results were low based on sales, but influential in accelerating MSOs entry into VOIP and "triple play" offers, where the local utility offers cable TV, internet access, and phone service. It was alleged that Jeff Citron himself hand-delivered a proposal for private label VOIP services for Cablevision Systems to the Dolan family, owners of Cablevision, on the runway for their private jet in 2002. (Cablevision launched Optimum Voice one year later.)
In 2002 the management team elected to enter the direct to residential and business phone service markets under Vonage Direct. Carlos Bhola went on record saying that he would "wear a dress if 10,000 customers ever bought Vonage Direct." Brooke Schulz joined the firm to run Public Relations. John Rego joined the firm as CFO (from Windstar).
In 2009, Vonage introduced the Vonage World calling plan, with "unlimited international calling to more than 60 countries" for a flat monthly rate.[34][35] Vonage began offering smartphone applications in October 2009. The Vonage Mobile app provided international calling via Wi-Fi and cellular networks, promoted as offering "50% savings" over competitive rates. The free app works on devices running Android, BlackBerry, and iOS (iPad, iPhone, iPod Touch).[36][37] A month later, the Vonage World Mobile plan was introduced, with Vonage World unlimited calling features for a fixed monthly charge, and included a discount to home service users.[34][38] Introduced in August 2010, the free Vonage Mobile application for Facebook provides "free one-touch mobile-to-mobile calls to Facebook friends who also have the application" for iPhone/iPad, iPod touch and Android devices, operating over Wi-Fi (free) and 3G/4G networks (uses data minutes).[39][40]
In order to use the home service, customers employ a "Vonage" branded "VoIP router" or a phone adapter that connects to their main router or broadband modem. In addition, an upload speed of 90–240 kbit/s as well as a reliable quality of service (QoS) optimized connection is needed to make calls without substantial lag or jitter.[41]
Subscribers are able to choose a number in the country of the service they subscribe to for their primary line, in an area code unrelated to their actual residence. Subscribers can obtain additional "virtual numbers" for a monthly fee. Vonage also offers virtual numbers in Mexico, Canada and Europe. While the company supports porting a U.S. telephone number via the FCC's local number portability (LNP), not every phone number is available in every area code.
Residents of the U.S., Canada, and the UK may subscribe to Vonage by credit card from their respective country, but "phone routers" can be connected to the Internet anywhere. The company also offers a "V-Phone" USB phone adapter which, using a softphone application on an internet-connected computer, forms a portable telephone with access to the worldwide telephone network.
A problem with any VoIP provider is that, since the physical location of a caller may not correspond to his or her listed phone number, traditional emergency telephone number service (9-1-1 in North America) is not available. Many VoIP providers use e911 instead, and are required by the FCC to provide some form of emergency service.[42] Vonage emergency phone service requires subscribers to register their address with the company and does not operate in case of an Internet connection disruption or power failure, unless an uninterruptible power supply (UPS) is used to power the Vonage telephone adapter, telephone base unit, and modem. Customers are responsible to maintain their 911 location information at all times.
If a customer dials 911 before the 911 verification is completed, the call will usually be routed to a national 911 call center where basic information must be given (name, location, nature of emergency, etc.), after which the call is transferred to a local public service answering point, like a local Police Department.[43][44]
To cancel service, Vonage requires customers to call a toll-free number, as service cancellation is not available on-line. Customer complaints about difficulties with the cancellation process and long hold times were detailed in a May 2006 Wall Street Journal article.[45]
Upon cancellation, customers frequently wish to transfer their phone number to another phone or VoIP service. Vonage offered local number portability (LNP)[46] for exiting customers, but not without some difficulties, since early FCC LNP rules did not apply to VoIP services such as Vonage.[47] In late 2007, the FCC tightened up those rules.[48] Vonage LNP transfers are handled by an outside party (Focal Communications, acquired by Broadwing,[49] acquired by Level 3).[50]
VoIP service relies upon consistent broadband-ISP uptime and VoIP-equipment compatibility with the ISP's modem. Though VoIP is optimized for voice, some fax equipment can be operated over VoIP,[51][52][53] but compatibility of monitored alarm systems and other devices is less certain.[54] Vonage offers "specially commissioned" Fax Line service[55] which initially was alleged to have VoIP-type problems (prompting a 2006 lawsuit, settled 2008).[56] The company has officially advised users of monitored alarm systems to contact their provider to determine VoIP compatibility, and has suggested using a wirelessly monitored system as an alternative.[57]
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