Charter: Vonage Friend or Foe?

Charter Communications Inc. (Nasdaq: CHTR) is launching a new marketing campaign designed to help worried Vonage Holdings Corp. (NYSE: VG) subscribers quickly become Charter voice customers. But, demonstrating the irony of the situation, Charter also has been piloting a voice and data bundle in conjunction with the troubled pure-play VOIP provider.

In an effort that aims to "ease Vonage customer concerns," Charter is offering same-day/next-day phone service installation for Vonage customers in the MSO's service areas. Charter has gone as far as setting up a dedicated hotline for Vonage customers who might be ready to churn, taking advantage of Vonage's ongoing troubles, including its patent spat with Verizon Communications Inc. (NYSE: VZ). (See Vonage, Verizon Fight to Go Into Late Rounds.)

Charter said the new campaign was spawned by calls received from "concerned Vonage customers" during the past several weeks. Charter launched the program on Wednesday, April 4, so it is too early to judge its effectiveness, an MSO spokeswoman says.

Vonage spokeswoman Brooke Schulz confirms that the VOIP company is bundling and reselling Charter cable modem service in the MSO's service areas.

The bundling arrangement, still in the trial phase, was not officially announced but was introduced several months ago and, to her knowledge, remains active. Because she is not privy to the business side of the discussion, Schulz says she does not know if Charter's decision to target Vonage customers would affect the standing bundling agreement.

"It's a great value," Schulz says of the Vonage-Charter bundle. "But our bundle with Charter's broadband is a better value than their bundle -- period."

The irony is that Charter promotes its own triple-play bundle. The Vonage bundle is for voice and data. Charter sells its own voice, video, and data bundle (triple play), as well a data and digital video bundle. Charter doesn't promote a voice and data bundle on its own, instead depending on the Vonage campaign. Charter, at the same time, points out that in its bundle, the voice runs over a private managed PacketCable network.

According to Vonage, the voice and broadband bundle runs $19.99 per month for the Charter-provided broadband component and $24.99 for the Vonage phone service -- roughly a $45 combo. An apples-to-apples comparison is difficult, however, based on the types of bundles Charter presently promotes on its site.

Charter's triple-play bundle of voice, video, and data starts at $99.97 per month, while its duo of a 5-Mbit/s cable modem service and "Big Value" digital video package is being marketed at $79.98 per month. The promotional period for the triple-play package runs 12 months, with a six-month promotional pricing term for the high-speed data/digital video combo deal

Vonage says it does not plan to combat Charter directly, believing its overall value will provide plenty of defenses against competitive poaching by Charter.

"It's truly in the non-issue category for us at this point," says Schulz. "We really don't need any tactics to defend against something like this, simply because our offer is superior in the marketplace."

Still, Charter's phone strategy is beginning to pay off. The MSO has ramped up its VOIP deployment and marketing efforts significantly, and reached the 500,000 phone customer milestone in February. (See Charter Joins Phone Party .) Charter currently passes 7 million homes with phone service, with plans to expand that footprint throughout 2007.

Vonage reported it had 2.2 million "subscriber lines" in service as of Dec. 31, 2006.

Will Charter's marketing ploy against Vonage cause other operators to follow suit? So far, it appears unique to the St. Louis-based MSO. Other large cable operators, including Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Cablevision Systems Corp. (NYSE: CVC), have not introduced any marketing campaigns that specifically target Vonage customers.

— Jeff Baumgartner, Site Editor, Cable Digital News