Vonage Turns a Double Play

Vonage Holdings Corp. (NYSE: VG) has announced that it is teaming with Covad Communications Inc. to sell DSL services to its customers. The service will be branded Vonage Broadband and will offer maximum downstream speeds between 3 Mbit/s and 6 Mbit/s by the end of this year. (See Vonage, Covad Team Up.)

It was an obvious move for Vonage, which faced a tough competitive landscape against incumbents and cable MSOs offering triple play services. While Vonage’s subscriber base continues to grow, it eventually needed to start offering other services besides voice to remain competitive.

Vonage would not say whether it is actively pursuing a similar partnership to offer video to its customers, but it is not discounting the idea. “We’ve been focusing lately more on our core businesses, but looking out on the horizon certainly we’re always on the prowl for areas we haven’t moved into yet,” said a Vonage spokesman to Light Reading.

No details are available yet on pricing for the new broadband service, but Vonage says those will become public in the coming weeks.

The announcement comes as Vonage continues to inch its way toward profitability. In the first quarter of 2008, it reported a loss of $9 million, or 6 cents per share, on revenues of $225 million. In the same quarter last year, Vonage lost $72 million, or 47 cents per share, on revenues of $196 million. For the second consecutive quarter, Vonage turned a profit on a non-GAAP basis. This time it took in $8 million, up from $3 million last quarter.

Table 1: Vonage's First Quarter 2008 Results
1Q08 1Q07 y/y Growth
Revenue (Millions) +$225 $+196 14.64%
Earnings (Millions) -$9 -$72 87.61%
GAAP EPS -$0.06 -$0.47 87.23%
ARPU +$28.85 +$28.31 1.91%
Churn +3.3% +2.4% 37.50%
Access Lines +2,610,360 +2,389,757 9.23%

It’s positive news for a company that took a beating in 2007. At the end of last month Vonage announced it had made progress in refinancing the over $250 million in debt it has that is set to mature at the end of this year. (See Vonage Takes Step Toward Recovery.)

Many concerns do remain. Its subscriber growth slowed to only 30,000 net adds in the quarter, down from 56,000 last quarter and 166,000 in the year ago quarter. The company now has 2,610,360 subscribers. Churn also continues to rise and is now at 3.3 percent.

Shares of Vonage though have opened up $0.14 (7.45%) to $2.02.

— Raymond McConville, Reporter, Light Reading

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