Vonage Plans Q4 Launch in UK

VOIP service provider in partnership talks as it plans cost-conscious European launch by end of year

June 11, 2004

4 Min Read
Vonage Plans Q4 Launch in UK

LONDON – VON Europe – If the British public doesn't know about VOIP just yet, they likely will soon. Hot on the heels of BT Group plc's (NYSE: BTY; London: BTA) VOIP trial announcement comes the news that voice-over-broadband player Vonage Holdings Corp. is set to launch a service in the U.K. in the fourth quarter of this year (see BT Moves Ahead With Mega Project).

Vonage's executive VP of product development, Louis Holder, told delegates at the VON Europe event in London that BT's consumer VOIP announcement "has validated the market" and that he is "investigating the market space," noting that the U.K. is currently adding about 40,000 new broadband subscribers per week at present.

He says he's in partnership talks with "a cable firm with a lot of broadband subscribers, but I can't name them. We'll be launching pretty soon though, probably in the fourth quarter. There are a lot of educated users in the U.K."

That partnership model follows on from Vonage's U.S. strategy, where cable firms resell Vonage services under their own brands. By using cable operators as a sales channel, along with direct sales and channel partnerships with retail outlets and Websites, the VOIP player has signed up 175,000 customers to date, of which about 80 percent are residential users, says Holder.

So who's the potential U.K. cable partner? There are only two such operators in the U.K., but they might not be as willing to join the Vonage Appreciation Society as some of their U.S. counterparts. Both British cable firms already provide circuit-switched voice to their residential customers as part of a triple-play of voice, TV, and broadband. In addition, they also both offer VOIP, as well as POTS, services to their business customers.

Telewest Communications Networks plc (Nasdaq: TWSTY), which has nearly 500,000 residential broadband subscribers, says its consumer division has not been talking with Vonage.

A spokeswoman for NTL Inc. (Nasdaq Europe: NTLI), which has just over 1 million residential broadband users, says she can't comment on the matter, but points out that "talks can sometimes lead nowhere."

So while Holder tries to pin down some channel partners for the British market, he has other considerations before launching into what is already a highly competitive voice market. He says Vonage would have to find a way to take a "tougher price position" than it currently offers in North America, and ensure that its offer "is competitive in terms of its feature set." He also has to sort out a numbering plan with the regulator, Office of Communications (Ofcom).

To be competitive on price with a voice service in the U.K. and not lose a lot of money would take a very low-cost entry strategy, and it seems that's what Vonage has in mind.

According to Rod Hall, a telecom analyst at Dresdner Kleinwort Wasserstein, Vonage plans to deploy the minimum possible infrastructure in the U.K., spending just €500,000 (US$600,000) on various media gateways and using the back-office system and services it has in the U.S. to support its customers and manage the accounts. Only once it has a certain mass of customers will it invest in separate customer and service support systems in the U.K.

Hall believes the entry-level systems cost for a VOIP startup that didn't have existing support infrastructure to fall back on in Europe would be between €5 million ($6 million) and €6 million ($7.2 million).

And the U.K. may not be Vonage's only European target. Holder says the Continent is "a good market to get into," where "broadband penetration doubled last year."

In terms of individual markets, "Sweden looks promising because of high broadband penetration levels," but Hall notes that there is already some VOIP competition to the incumbent POTS providers, most notably from fiber-to-the-home player Bredbandsbolaget AB (B2).

Other countries of interest to the Vonage man are France, Spain, and Italy.

And wherever the company launches new services, it'll learn from its experience in Canada, where it recently started offering its services. "Canada was semi-easy, though. There are many similarities with the U.S., and it has good broadband penetration levels. The main differences were in the currency and that there are some French-speaking areas."

One thing Vonage won't do is mention VOIP to its new prospective markets. "We have to keep it simple, and stay away from high-tech setups and technical terminology. In North America we call our service 'broadband telephony,' and that's what we'll likely do in Europe, too."

— Ray Le Maistre, International Editor, Boardwatch

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