VOIP poster-child Vonage has chosen the investment banks to take it public, sources familiar with the situation say, but some of the bankers involved believe an acquisition might be a better long-term strategy for the N.J. company. (See Sources: Vonage Is Eyeing the Exits).

After a six-month bake-off, Vonage has chosen Citibank, UBS AG, and Deutsche Bank AG to lead the IPO, which will happen in five to six months, the sources say.

Sources say the banks will make the usual preparations for issuing stock, while privately holding conversations with potential acquirers.

Vonage spokeswoman Brooke Schulz says her company can't comment on the matter.

Vonage, being perhaps the first serious residential VOIP play, is now four years old and has amassed over a million subscribers, as the company recently announced. (See Vonage Exceeds One Mil .) But this has come at significant cost: Vonage has taken a total of $408 million in venture capital to date, including a $200 million infusion in May. (See Vonage Raises $200M.) And the cost-per-subscriber metric isn't likely to improve post-IPO. Sources say the investment bankers are concerned about the stability of Vonage's future stock price in an increasingly competitive residential VOIP market.

Analysts believe that competition from well-moneyed telephone and cable companies will eventually stunt Vonage's subscriber growth. These companies, which typically own their broadband infrastructure, aim to offer PSTN-connected VOIP service comparable to Vonage's, and bundle it with other broadband services like video and data. That, Vonage cannot do. (See Citron: Triple Play Is Tripe.)

In addition, Internet players like Yahoo Inc. (Nasdaq: YHOO), Google (Nasdaq: GOOG), Time Warner Inc.'s (NYSE: TWX) AOL division, EarthLink Inc., and Microsoft Corp. (Nasdaq: MSFT) have invaded the sector, announcing plans to offer their own flavors of residential VOIP. (See Microsoft Buys Skype Rival, Earthlink Joins VOIP Parade, AOL's Got VOIP Again , and Yahoo Enters VOIP Fray.)

As an alternative, some analysts believe a Vonage sale in the near future could bring as much as $1.5 billion from the right buyer.

That "right buyer" might be an operator that owns some or all of its broadband infrastructure and that can bundle Vonage service with other broadband services. Alone, Vonage is a VOIP pure-play that relies on its subscribers to "bring their own" broadband access.

Whether its exit is through sale or IPO, Vonage would do well to act soon -- in the afterglow of the jaw-dropping $2.6 billion sale of Skype Technologies SA to eBay Inc. (Nasdaq: EBAY). (See EBay Buys Skype for $2.6B.)

— Mark Sullivan, Reporter, Light Reading