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Vonage Peer Makes a Fine Whine

8x8 Inc. (Nasdaq: EGHT) shareholders are feeling testy about the company's sagging stock price. So much so that CEO Bryan Martin Wednesday issued an open letter meant to reassure them (see 8x8 Addresses Concerns):

    Over the past few days, I have received calls from a number of shareholders who expressed concern about 8x8 and the future of the VoIP industry," Martin begins. "I would like to take this opportunity to comment on some recent events in the VoIP industry and at 8x8, Inc., which I believe have unjustifiably affected 8x8's stock price and valuation. [Ed. note: Silly shareholders. How dare you worry about your investments like that!]
While several things may be pulling 8x8’s stock price down, 8x8 has clearly been hit with some shrapnel flying from the general direction of Vonage’s IPO, which exploded on May 24. Vonage stock opened at $17 a share and has lost about half its value since then.

The main point of Martin's letter is that the 8x8 shouldn’t be punished for Vonage's problems. (See Vonage Gets a Haircut.)

“We think it’s had some effect, and we felt the need to let it be known that our offering is different than theirs, and we’ve got a different business model that is much more conservative,” says 8x8 spokeswoman Joan Citelli.

Martin takes pains to point out that 8x8’s services are more diverse than Vonage’s residential VOIP offering. 8x8, Martin says, has a business in hosted IP voice for businesses and offers a videophone product -- all built on home-grown technology.

"We remain extremely judicious about our customer acquisition costs," Martin writes in a jab at Vonage. "We have absolutely no intention of competing with nonsensical consumer promotions and advertising whereby customers added will never be considered profitable subscribers."

Vonage's customer acquisition costs were almost as much as its total revenues during 2005, according to SEC filings, and are showing no signs of slowing in 2006.

The Vonage IPO is just one of a few factors making it a long, hot summer for the pure-play VOIP crowd.

The VOIP providers were given news earlier this month by the FCC that they would be paying more into the Universal Service Fund. (See FCC Dials VOIP for USF.)

The firms also have seen hopes for tough network neutrality legislation dashed first in the House, then in the Senate. (See Net Neutrality's End Might Turn a Buck.)

"When you add up everything that's happened with the Vonage IPO and some of the legislative and policy happenings including the USF decision, and net neutrality, it's been a tough month," says Brian Lustig, spokesman for SunRocket Inc.

"In terms of the overall market, I think he's just trying to remind folks that there's still some positives out there," Lustig says of Martin's letter to shareholders.

— Mark Sullivan, Reporter, Light Reading

DCITDave 12/5/2012 | 3:49:41 AM
re: Vonage Peer Makes a Fine Whine If VOIP providers were really a threat to the incumbent phone companies, wouldn't the phone companies lower their prices as a competitive response?

ph
rjmcmahon 12/5/2012 | 3:49:40 AM
re: Vonage Peer Makes a Fine Whine Don't know if the incumbents will participate in a voice price war but the topic reminds me of a tale I read about Jay Gould and Cornellius Vanderbilt. (Will cheap, i.e. below costs, VOIP drive broadband revenues for the incumbents?)

The battle for the Erie Railroad, in particular, is mind-bogglingly complex, but anyone can appreciate Gould's response to a rate war between the Erie and its rival, the New York Central, owned by Vanderbilt. After Vanderbilt cut the price for shipping a carload of cattle from $125 to $1, he delighted at reports of empty cars on the Erie. He did not realize that Gould and Fisk had bought up all the marketable livestock coming into Buffalo from the West and shipped it to New York City on the New York Central, reaping a windfall profit.

http://renehan.blogspot.com/20...
Michael Harris 12/5/2012 | 3:49:37 AM
re: Vonage Peer Makes a Fine Whine The only "VoIP" providers that are threats to the ILECs in the near term are cable MSOs, which collectively control 60% of the VoIP space. See http://blog.cabledigitalnews.c...

The RBOCs are responding by discounting calling and DSL package prices.

Cable will kill the VoIP players that fail to self-destruct on their own. Maybe 8x8 can say its lunch was ate by eight cable operators?

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