Slipping Vonage narrows loss in 2Q

The Baltimore Sun

NEW YORK -- Battered by legal and financial troubles, Vonage Holdings Corp. has slipped from its spot as the largest provider of Internet-based phone service, overtaken by cable firm Comcast Corp.

Reporting second-quarter financial results yesterday, Vonage said it had slowed financial losses by cutting marketing expenses, but that also meant fewer new subscribers.

Vonage also said it had made progress with technology changes meant to sidestep a court ruling that it violated patents held by Verizon Communications Inc., of New York

Vonage, based in Holmdel, N.J., gained 57,000 customers for a total of 2.45 million in the three months ending June 30. In that period, Comcast surpassed the 3 million mark by adding 671,000 subscribers for its digital phone service.

The passing of leadership bragging rights is the latest sign of a shift in the Internet phone industry as stand-alone providers struggle and cable companies ascend by selling phone services in packages along with Internet access and TV.

"Most customers will choose the big bundle, since this is where the bargains will be," said Jeff Kagan, a telecommunications analyst based in Atlanta. He said Vonage can compete for only a small slice of those consumers.

Vonage, which once deluged the Internet with advertising, reduced marketing spending in the second quarter to $68 million, down from $90 million in the quarter a year ago.

The company said its net loss narrowed to $34 million, or 22 cents per share, down from $74 million, or $1.16 per share for the second quarter last year. Excluding one-time charges, Vonage lost $18 million, or 12 cents a share.

Revenue was up 43 percent to $206 million from $144 million in last year's second quarter.

"I believe we are turning the corner on one of the most difficult periods in Vonage's history," interim Chief Executive Officer Jeffrey A. Citron said.

Earlier this year, a jury found Vonage had violated patents held by Verizon and must pay royalties. Vonage is appealing.

Vonage spent $287 to acquire each subscriber in the second quarter, up from $273 in the first three months of the year. Citron said the changed marketing strategy lowered that cost to $250 in June and July.

While Vonage was a pioneer in Internet phone service in 2002, the company suffered a disastrous initial public offering last year.

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