Vonage's High-Spending, Low-Return Ways Make It Ideal For The MVNO Market

from the misguided-strategy dept

Things have been a little bit quiet on the Vonage front since the company’s shambolic IPO last year, but it’s been more of the same: slowing growth and poor financial performance. Apparently, though, the company has a new plan — BusinessWeek swears that Vonage is going to become an MVNO and start selling wireless service. The article says that with such a move, “Vonage might have a better shot at profitability.” But that’s really not clear at all, since the virtual operator market has been one largely characterized by heavy losses and high customer-acquisition costs, with very few hits to balance all the misses. The article further surmises that Vonage needs to get into selling multi-service bundles to survive and succeed, but this, too, doesn’t make a lot of sense. It’s rather unlikely that Vonage will be able to undercut the cable operators that are beating it at VoIP by reselling their broadband and TV services under its own brand. It already offers one commodity product, VoIP, where it really only competes on price, so trying to bundle together a few others and take on some formidable rivals (like cable and telephone operators), again, competing just on price, doesn’t seem like the wisest idea. The company says it will introduce new products like dual-mode cellular-WiFi handsets, but again, all these really aim to do is offer cheap calls — and that’s a strategy that isn’t currently working for Vonage, and one that isn’t sustainable once its rivals also drop their rates and remove any differentiation.


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Comments on “Vonage's High-Spending, Low-Return Ways Make It Ideal For The MVNO Market”

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15 Comments
Anonymous Bastard says:

Vonage can’t be so blind as to not see that it is charging almost double of what other VOIP companies charge. I pay $20 a month for unlimited local calling with Primus Canada and there is an option for $30/month with unlimited calling anywhere in North America. Vonage charges 39.99 for unlimited North America calling for $40… why pay them when I can get better service for less? It is simple economics.

Flash McDirt says:

Another Vote for Vonage

Vonage is our only phone, has been for over 2 years now. We’re paying $14.95 for 500 minutes/month (and have never come close to using all of the minutes).

Our ISP offers VoIP for $29.95, which is double what we’re paying and $5/month more than Vonage’s unlimited plan. I can’t figure why any sane person would go with the ISP plan when Vonage is cheaper, and, based on our moron neighbor’s constant complaints, Vonage is also much more reliable than the ISP’s version of VoIP.

Jason Cameron says:

Vonage is good!

I have also had Vonage for about 2 years and have had no problems! I pay $24.95/month before taxes…after taxes it is about $27.

My ISP charged me $40 for VOIP service…and the quality sucked. My hope is that Vonage figures out a way to keep its nose above the water and survive somehow.

I don’t know where people are getting figures that ISP’s are cheaper than Vonage…

Chris F says:

wow

The only VOIP options I have around me besides vonage is Comcast $39.99 a month (assuming you have their internet, which is about $54.00 a month for 756/6.0)

Vonage seems to stilll be cheaper in the outer suburbs in places that people dont have smaller startups. I hate comcast and there’s no way I’d pay $39.99 for phone service, I just dont use it. I bought unlimited calling in the us and canada for a year with Skype for $14.95 and I have my cell phone with more minutes than I ever use.

I dunno how people can pay so much for phone service.

Dean Landolt (profile) says:

Carlo…

I understand your skepticism, but do you really believe dual-modes or multi-carrier bundles would differentiate Vonage only on price?

How many people yearn to unstrap themselves from their carriers? With Vonage diving in, it will be easy to get solid, consistent cell service from any tower they do a deal with — Vonage would even route the call through the cheapest carrier they have a deal with.

This starts to sound an awful lot like turning the carriers into bitpipes — something you advocate. Maybe you’re right — Vonage’s free wheeling ways may not allow it to come out on top, but what it could do is FINALLY open up the mobile market and start to bridge the carriers — that’s the story worth writing about!

a says:

“But that’s really not clear at all, since the virtual operator market has been one largely characterized by heavy losses and high customer-acquisition costs”

OK, not to be rude, but isn’t the MVNO model that has shown heavy losses and high customer acquisition costs right up Vonage’s alley? Hell, that is already their business model, so this should be right in their sweet spot.

Throw in a PA 911 call that gets routed to Canada and Vonage is having a pretty good week.

Derek Kerton (profile) says:

Business Lines

Vonage should be going after the Small and Medium business market for growth. With IP PBX systems every cheapening, and free open-source PBX software like Asterisk that can run on any old box, a lot of small firms are interested in taking control of their telephony, and building an in-house solution. But the hardest part is the off-premise part: getting phone #s allocated, getting IXC service, getting dialtone. So if Vonage just started selling a business plan with a phone #, dialtone, and features, at $15/line — but no CPE, no ATA, Bring Your Own…then the small businesses would use it as the leading, well-known provider of basic VoIP lines of service.

PS, I agree with Dean above that the FMC play is interesting, even if only because it is disruptive. With T-Mo as our only USA FMC player, we won’t see much desire to shake up the mobile telecom industry. Vonage might push harder.

Also, most of the failed MVNOs were high-cost, data-service-heavy plays. They wanted to sell $500 cell phones and $100/mo service plans. Surprise! That didn’t work. Vonage would not invest in such an expensive platform. Also, marketing and acquisition costs have been the bane of MVNOs, but Vonage can target it’s existing 2M subscribers to start out. That’s a big head-start.

Vonage, for all its troubles, does have a huge lead in the customer acquisition department. At some point, they will have to leverage this. An FMC MVNO gives them the opportunity.

Now it all depends on how good a wholesale deal they can get from Sprint (or whoever).

sirsurfalot says:

Vonage was first

I have had Vonage voip service from the first day it was deployed in my area (Detroit, Michigan). I have saved over $1000.00 per year in phone bills from traditional land lines. Voice quality is acceptable and downtime is virtually non-existant. Over the years I have had land line phone service with Talk America, SBC Ameritech, and just about everybody in between. Nobody beats Vonage, period.

specsaregood says:

Vonage works

I’ve had vonage for over 2 years. I had them for over a year in the U.S. and the only problem I had was with my crappy ISP (comcast sucks, period) I have since moved out of the U.S. took my vonage router with me and kept my same U.S. phone number and it WORKS! Most of my friends/family/customers tell me that it is sounds the same as when I was in the U.S. But actually MORE reliable

When I found out it worked seamlessly from my international location, I added a second line for the wife. So now, people can call a “local” (read: 7digit) number and get ahold of either of us, even though we are on an island in the caribbean. Can’t beat that!

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