x
Optical/IP

Vonage Hearing Buy-Out Bids

VOIP pioneer Vonage Holdings Corp. has heard several acquisition offers in the last two weeks, a source close to the situation says, and has already rejected at least one worth more than $1.5 billion.

Vonage is ostensibly preparing for an IPO, but has been taking a dual-track approach toward liquidity that includes the possiblity of an acquisition. Sources say the N.J.-based company’s investment banker partners have been looking for buyers for some time. (See Vonage Selects IPO Bankers.)

Meanwhile, analysts in recent weeks have floated a price of $1 billion to $1.5 billion as Vonage's likely valuation if a sale should take place in the near future. (See Vonage Exceeds One Mil .)

And the time for Vonage to sell may be right now.

The $2.6 billion valuation of Skype Technologies SA by eBay Inc. (Nasdaq: EBAY) caused many to believe that Vonage, when the time comes, would receive a similarly generous valuation.

Some observers believe a window of opportunity for a Vonage sale opened when eBay took Skype, and will close on the day Vonage becomes a public company. (See EBay Buys Skype for $2.6B.) Within that window, Vonage has the best chance of leveraging current investor buzz over VOIP to command a high selling price.

Rumors have been circulating for weeks that one of Vonage's suitors is BellSouth Corp. (NYSE: BLS), a notion Vonage has never denied. Board members at one Vonage competitor are so sure the RBOC will take Vonage that they have begun strategic planning as if the deal had already occurred.

A BellSouth acquisition of Vonage might indeed make sense for both parties. BellSouth might pay a premium for a ready-made entrée into the residential VOIP business, virtually erasing the headstart taken by competitors like Comcast Corp. (Nasdaq: CMCSA, CMCSK) and other RBOCs.

And BellSouth may be better positioned to expand the Vonage property than Vonage by itself. BellSouth owns its own access facilities and can offer Vonage service to customers as part of a larger, bundled offering. (See Broadbanders Bubbly Over Bundles.) If Vonage goes it alone, it would likely face persistent investor skepticism over the Vonage business plan’s long-term payoff potential.

Vonage’s eventual exit is seen as very important to the future of an entire class of “pure play” or "replacement" VOIP providers. (See Packet Voice Over Broadband.) A sale could take the valuation of such companies out of the realm of analyst speculation and provide a real cost-per-subscriber dollar amount on which to base future VOIP acquisitions or stock pricings. (See Does VOIP Business Add Up?)

If Vonage is bought at a high price, some analysts believe other privately held VOIP companies like Lingo Inc., Nuvio Corp., and SunRocket Inc. might be emboldened to jump up onto the selling block.

“I think the valuation of Vonage would be high, and I think that would potentially cascade down to 8x8 so you have that ‘rising tide raises the smallest boat’ kind of thing,” says 8x8's VP of sales and marketing, Huw Rees. “I think there’s a feeling that if they get valued at a high amount per subscriber, then we would expect our market cap to rise correspondingly."

— Mark Sullivan, Reporter, Light Reading

voyce_overipee 12/5/2012 | 2:56:51 AM
re: Vonage Hearing Buy-Out Bids hrmph. that didn't work.
here's the URL: http://www.zdnetasia.com/news/...

this should work too?

voyce_overipee 12/5/2012 | 2:56:52 AM
re: Vonage Hearing Buy-Out Bids LR, another one:
ZD Net article on the new Senate resolution.
milliman 12/5/2012 | 2:56:53 AM
re: Vonage Hearing Buy-Out Bids Sorry...wrong link. Here is the correct one: http://mmilliman.blogspot.com/...
milliman 12/5/2012 | 2:56:53 AM
re: Vonage Hearing Buy-Out Bids Forget the RBOC, the wireless carriers should take an interest in Vonage. Why? I'll just point you to my blog: http://mmilliman.blogspot.com/...

Mark
PO 12/5/2012 | 2:57:01 AM
re: Vonage Hearing Buy-Out Bids Red Panda, #32, "Who the eff is "Marksu"?"

I would guess that "Marksu" is "Mark Sullivan" who, among other things, signed the "Internet Peering on Thin Ice?" article.

But then, I don't work here. Or there. Or someplace. Or, these days, anyplace.
voyce_overipee 12/5/2012 | 2:57:05 AM
re: Vonage Hearing Buy-Out Bids Plus articles in The Economist, the Guardian, The New York Times, CNN, Slashdot, etc. All over the place really.

But it got heated just last month by an EU meeting and statement of position. And then next month is the UN World Summit on Information Society in Tunis where the gauntlet/ultimatum will probably be thrown down.

Should be fun to watch.
PO 12/5/2012 | 2:57:07 AM
re: Vonage Hearing Buy-Out Bids Hmm.

Looks like the thrust of "this" has been going for a while. (And apologies for continuing off the topic of the thread.)

http://www.wgig.org/
http://www.unicttaskforce.org/...
etc.
PO 12/5/2012 | 2:57:07 AM
re: Vonage Hearing Buy-Out Bids Goodness! All we need is some bureaucrat (instead of some businessman) deciding how many character codings of your domain name you have to pay for separately.

There is nothing in the Internet today preventing any country from allowing local DNS providers to recognize and resolve any favoured character encoding within their national TLD. And I'm sure ICANN will get around to allocating them their "equivalent" TLD (e.g. allocate the ".[international character set encoding for China]" to China).

Are these countries just upset that neither IP(v4) addresses nor AS numbers are hierarchical?

I think the article has it right: these countries don't know what they want.
Michael Poole 12/5/2012 | 2:57:08 AM
re: Vonage Hearing Buy-Out Bids "Bits and pieces"? Which planet are you guys on? It's been all over shop, and even the Aussies are reporting it:
http://australianit.news.com.a...

OK, so ICANN is headed by an Ocker so they're bound to have noticed, but I've even seen reports from New Zealand - and on the Beeb, of course.

As for what's the best way to run it, I have no idea, although the ITU could fossilise it instantly, in 3 languages to boot (been there, done that). The main problem with the present set-up is the perception (not necessarily valid, but not necessarily invalid, either) that Uncle Sam has some sort of hold over ICANN.

Don't expect sanity, though. This is a religious war.

M
paolo.franzoi 12/5/2012 | 2:57:23 AM
re: Vonage Hearing Buy-Out Bids
I would sell the UN the Internet. Say $10T would do it.

Then start a new network.

seven
Mark Sullivan 12/5/2012 | 2:57:23 AM
re: Vonage Hearing Buy-Out Bids Yes, we've heard bits and pieces of this. I will look into it, and thanks for the idea. -M
voyce_overipee 12/5/2012 | 2:57:24 AM
re: Vonage Hearing Buy-Out Bids Sorry to tangent from vonage, but i didn;t know how to send a message to LR folks and i see one is on this board.

Why haven't you done an article about the current UN battle with the US over "control" of the internet (and by that they mean ICANN, dns admin, and possibly ip address alloc)?
I'm not sure everyone knows about it, and I bet it would generate lots of discussion.
Mark Sullivan 12/5/2012 | 2:57:25 AM
re: Vonage Hearing Buy-Out Bids Here, here! Play nice, lads.
startup_shutup 12/5/2012 | 2:57:29 AM
re: Vonage Hearing Buy-Out Bids VC investments are rising in Silly Con Valley. I get on an average 6 recruiter calls per day. We will see same startup waste (basically entreprneurial scam) again.

Yes...this has never happened before, right?
deauxfaux 12/5/2012 | 2:57:29 AM
re: Vonage Hearing Buy-Out Bids I'll bet you haven't had 6 recruiter calls in your life. You spend half of your workday railing against startups and the other half complaining about real estate prices in SV.

Move to Phoenix, work for a government contractor and take a prozac
spelurker 12/5/2012 | 2:57:32 AM
re: Vonage Hearing Buy-Out Bids > 400M is pocket change in telecomm.
> Look at satellite radio

No. Don't look at satellite radio. Apples != Oranges

Look at previous aquisitions by RBOCs (these are NOT Cisco or Nortel) they pick and choose from a VERY small list of companies. Sure, they will pay big$$ if they think they have value, but they have a history of not trusting outsiders easily or making aquisitions quickly. Not to mention that their capital is currently tied up in a HUGE network buildout. (BLS is the exception to this)

Therefore, I predict the following:
1. BLS will engage in talks with Vonage.
2. Jeffrey Citron's huge head will get stuck in the doorway when he inexplicably asks for $3B, and BLS will walk away from the table.
3. Some non-telco, cash-rich idiot company will then buy Vonage for >$2.5B
whyiswhy 12/5/2012 | 2:57:33 AM
re: Vonage Hearing Buy-Out Bids Let's see, a VC-backed hype job called Vonage being worth a $B? Idiot investment bankers with lots of cash, spec,spec,speculating on the next "hot" thing? Never mind engineering reality. It's hot.

Stick someone with hot hype-sause and run.

That's never happened before, right?

-Why
spelurker 12/5/2012 | 2:57:33 AM
re: Vonage Hearing Buy-Out Bids I suspect that Vonage has some value to an RBOC.
1. They are an established brandname with $300 million in marketing already sunk. BLS or whoever have zero street cred in this market and would need to spend at least that much $ and time to build to the level of Vonage. Pay 4x this $, but gain 18+ months of history overnight, leverage their installed base of stupid little IP phones and home routers, while taking a non-trivial competitor out of the equation.
2. VoIP makes little sense as a primary line service in the Vonage model -- they have NO control over the transport, therefore they have issues with reliability (90% of the time, no one cares, but for regulatory compliance, emergency/911 services, home alarm systems, etc. reliability is a deal breaker). In an RBOC however, they can guarantee service since they control the infrastructure from the DSL modem all the way to the voice gateway and on to the class-5 switch. Add a battery backup to the DSL modem, and you're done.

So for a company without infrastructure, Vonage would be a risky target. But for a company with a large infrastructure, it is a little more compelling -- though the only thing they have which you couldn't get cheaper is the instant name recognition.
choo 12/5/2012 | 2:57:33 AM
re: Vonage Hearing Buy-Out Bids
I predict all of your prognosticating is wrong. 400M is pocket change in telecomm. Look at satellite radio -- many billions spent there, no profits yet, but the billions just keep coming. VoIP is the future, whether via wifi or cable or dsl or any new pipes coming down the pike. The RBOCs know this and they want those subscribers to come back into their fold. You might as well argue that Sam Walton was wrong because he went after bargain shoppers who were only interested in low prices.


choo 12/5/2012 | 2:57:34 AM
re: Vonage Hearing Buy-Out Bids
I dropped VZ POTS and went with Vonage 6 mos ago. I set up my account to simul-call my home phone and my VZ cell phone. I also moved recently and it was just a plug-in at the new location. I'll never go back to POTS.

By the way, Skype has VERY FEW paying customers. Almost everyone uses it for free, and the service is crawling with spammers. It works great for person-to-person calls with other Skype users, and that is about the extent of it.

geof hollingsworth 12/5/2012 | 2:57:35 AM
re: Vonage Hearing Buy-Out Bids

So this is Webvan, partie deux?
voyce_overipee 12/5/2012 | 2:57:35 AM
re: Vonage Hearing Buy-Out Bids My view of the universe:

I agree with your view of the universe. the funny thing is you could replace the word "Vonage" with "Skype" for most of your statements, yet ebay was willing to pay $2-4B for it. And Skype hadn't even invested near as much in marketing, and their captial equipment could be reproduced for even less, and they had far less VC investment - yet they went for a bigger price. but then skype did have more customers (if you believe their funny math), but fewer paying customers.

its a crazy world.
alchemy 12/5/2012 | 2:57:36 AM
re: Vonage Hearing Buy-Out Bids My view of the universe:

* Vonage has inhaled something pushing $400 million of VC cash. One can imagine that the liquidation preference on this favor the venture capitalists. If you can't get a billion for it, nobody inside the company makes much money.

* The capital equipment owned by Vonage could be replicated by anybody for $20 million. It's just media gateways and SIP proxies.

* Vonage customers are the worst possible customers. They use Vonage because it has the lowest price. That makes Vonage extremely vulnerable to customer churn. Their only savior is that their number portability is so screwed up that you can't port your number out of Vonage to a competitor. That is bound to be stomped on by the regulators since people are allowed to port numbers into Vonage.

* Vonage has dumped $300 million into marketing their brand. If they don't keep spending to market the brand, natural churn makes their exising customers go away. You can't show a profit since all your cash goes out the door to pay advertising. I don't see how the business model makes sense.

My conclusion:
Some sucker might pay a billion for this dog but I doubt it. I don't see how they can do an IPO without showing a strategy to be profitable. Once they chew through all the VC money and the VC community figures out that the can't make anything on a deal that already has a half billion of VC cash in it, they can't advertise and they stop growing... and eventually contract and train wreck. 5 years from now, it's entirely likely that Vonage will be regarded as the spectacular VoIP crash of all time.
geof hollingsworth 12/5/2012 | 2:57:40 AM
re: Vonage Hearing Buy-Out Bids Who is NextStep? (other than the OS from the failed NeXt platform i think?)


Sorry, I meant New Step http://www.newstep.com .
I believe their software supports both sets of features you are describing.
voyce_overipee 12/5/2012 | 2:57:42 AM
re: Vonage Hearing Buy-Out Bids Not really related to vonage, but why hasn't Light Reading covered the recent stories of the patent infrigement case against Blackberry that's threatening to shut them down in the US? (it's been all over slashdot)
voyce_overipee 12/5/2012 | 2:57:42 AM
re: Vonage Hearing Buy-Out Bids they don't need Vonage for that and, in fact, Vonage doesn't even help much there (if at all).

I think the you're focusing on the wifi cellphone piece, which obviously can do without vonage style service at all (especially since vonage doesn't actually have the extra protocol support needed for it today, and they focus on the pseudo-fixed MTA model).

But VZ does need them (or someone like them) to get the dual-ring and free intra-calls as a cheap service into the homes they don't reach. My guess is it would be a lot cheaper to get that into those homes using voip than dealing part of the revenue to the RBOC there. if they can work out how to keep the broadband provider from blocking or impacting their voip.

Besides, i can think of some neat things to do if you provide both the voip wifi-MTA and the wifi-cellphone to a home. like make the cellphone another extension of the house line, or integrate my speed dial #s of the two systems, or some other things i should patent right now. of course you can do that with POTS and back-end software too, but again they don't own the pots everywhere.

Of course they could buy someone else or do it themselves, but looking at how slow a company like VZ moves, i bet buying a vonage would make more sense than Bellsouth in the end. (unless it's really billions of $)

For that Verizon needs (and is presumeably considering) the sort of software that NextStep and others have for converged fixed/wireless services. Nothing to do with Vonage.

Who is NextStep? (other than the OS from the failed NeXt platform i think?)
geof hollingsworth 12/5/2012 | 2:57:43 AM
re: Vonage Hearing Buy-Out Bids VZ's FIOS demonstrates that the phone companies do have the skills to acquire the programming and to market the service.

Perhaps. Certainly it shows that they can run a successful trial aimed at existing video customers in the Texas regulatory climate. Most of their channels are analog and not digital, so maybe they are still developing those programming skills. I certainly agree that there is strategic sense in pursuing this market, but if it was me, I would be trialing things that the MSO's can't (or don't) do, like the new mtvU +£ber.

Not that it matters for the point at issue, but the underlying FIOS architecture isn't IPTV; itGÇÖs just QAM digital cable over fiber.
rjmcmahon 12/5/2012 | 2:57:44 AM
re: Vonage Hearing Buy-Out Bids I am not sure the incumbents have the programming and marketing skills to be successful as the fourth video service provider

VZ's FIOS demonstrates that the phone companies do have the skills to acquire the programming and to market the service.
geof hollingsworth 12/5/2012 | 2:57:45 AM
re: Vonage Hearing Buy-Out Bids i would switch from my local POTS provider to Verizonage VoIP if i could tie it in to my VZ cell. (like call home for free on my cell, ring both places, use my 802.11 for cell, etc.)

I buy that too, but again, they don't need Vonage for that and, in fact, Vonage doesn't even help much there (if at all). For that Verizon needs (and is presumeably considering) the sort of software that NextStep and others have for converged fixed/wireless services. Nothing to do with Vonage.
voyce_overipee 12/5/2012 | 2:57:45 AM
re: Vonage Hearing Buy-Out Bids boy is that the billion dollar question.
probably why we don't run these companies - because we think in terms of cost vs. return.

the only reason i could think of is as you say to get the out-of-area customers. That's new revenue to BLS. Is it worth $1 or 2B? dunno.

To me VZ would make a lot more sense. Because they could tie the vonage voip service to their cell service, both with the wifi-capable cellphones and with free intra-VZ wire-wireless calling offers. That would get my attention for sure, and i would switch from my local POTS provider to Verizonage VoIP if i could tie it in to my VZ cell. (like call home for free on my cell, ring both places, use my 802.11 for cell, etc.)
voyce_overipee 12/5/2012 | 2:57:45 AM
re: Vonage Hearing Buy-Out Bids at $1B valuation. I'm sure their looking to meet or beat Skype's dollar value.

Why? So that 2 wrongs can make a right?
Skype has more customers at a much lower investment and operating cost and my guess is vonage burns a lot more net cash. (but hopefully vonage has more gross revenue?) And skype has an arguably better world-wide brand name, even with vonage's marketing spending.
lightpimp 12/5/2012 | 2:57:46 AM
re: Vonage Hearing Buy-Out Bids Your exactly correct regarding Vonage not really being much of a VoIP carrier. They are not even a CLEC. More or less their success has been in subscriber aquistion and marketing WooHoo! Nonetheless, the incumbant telcos may be forced to simply re-acquire residential subscribers that they may have lost to VoIP or speculate they will lose them in the near future. The real issue that many people in the industry haven't mentioned is that SOHO or residential profit margins between POTS and VoIP are still relatively small. The real loss for the telcos would be to lose the SMB and mid-level enterprise market share to hosted IP solutions. Businesses pay dramatically higher costs for voice services and hence the telcos have much more to lose within this market segment.
geof hollingsworth 12/5/2012 | 2:57:46 AM
re: Vonage Hearing Buy-Out Bids That is definitely part of the question. I certainly understand the argument that an IP network would be cheaper to maintain, and that BLS is already moving that direction starting with their Class 4 switches. But I don't see how buying Vonage helps much (if at all) in that transistion. Vonage's money has mostly gone into acquiring customers, not building a network. They have a few softswitches and gateways and a simple billing system, but their traffic rides on other people's networks. Their value (or lack thereof) is in their customers, which BLS already has. Or so it seems to me.
paolo.franzoi 12/5/2012 | 2:57:47 AM
re: Vonage Hearing Buy-Out Bids lightpimp,

But Geoff's point is:

If price of voice is going down (either POTS or VoIP), why would I invest money to build a network when I already have one?

seven
lightpimp 12/5/2012 | 2:57:47 AM
re: Vonage Hearing Buy-Out Bids I don't think that the RBOCs would dare cannibalize thier cash cow POTS business even if the current infrastructure is already paid in full. The real issue are the costs that are associated with maintaining the circuit-switched networks. Judging from the stock action in the main telcos, shareholders are beginning to price in erosion of profits in landline operations and also the requirement to deploy their cash to either build or aqcuire VoIP related assets. Is Vonage worth $3B?? Was Skype worth it?? In the end acquiring and maintaining subscriber revenue is really all that matters.
geof hollingsworth 12/5/2012 | 2:57:48 AM
re: Vonage Hearing Buy-Out Bids I will admit to not being the sharpest pencil in the drawer, but I cannot see the appeal of Vonage to BLS (or people like them). They already have the voice customers, most of whom would leave for a VOIP provider only if if is cheaper (while still performing as much like BLS's current circuit-switched voice offering as possible). Why does BLS need to pay $billions for Vonage when they can just drop the price on the service they already offer over the network that is already paid for (albeit not yet fully depreciated)? Is this a play on out-of-area voice customers? If so, again I wonder if that is much of a priority, and even if it is, there must be cheaper alternatives than Vonage.

The big issue, it seems to me, is the need to have a bundling solution to use against the MSOs, which is why all the hype over IPTV (and its cheaper, more practical cousin, TV over IP). I am not sure the incumbents have the programing and marketing skills to be successful as the fourth video service provider, but at least I can understand the strategic rationale in spending the billions to give it a shot.

But Vonage is worth $billions to BLS? Enlighten me.
lightpimp 12/5/2012 | 2:57:48 AM
re: Vonage Hearing Buy-Out Bids at $1B valuation. I'm sure their looking to meet or beat Skype's dollar value. If BLS doesn't make a move soon than SBC or VZ most likely will!
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE