Vonage Spins Happy, But New Customer Subs Decline

In its latest quarterly report, Vonage [1] announced it had significantly cut its financial losses and tossed in a Covad [2] DSL resale announcement for good measure. However, the company is also losing ground in adding and retaining subscribers. Vonage signed up 30,000 net new subscribers in the first quarter of 2008; in the previous quarter it had added 56,000 subscribers. A year ago, it added nearly 166,000 subscribers in the first quarter.

More ominous than a slowdown in new subscribers is an uptick in the monthly churn rate, from 3 percent to 3.3 percent per month. Multiply it by 12 months and you get a turnover rate of nearly 40 percent per year if it continues. Vonage has improved the amount it spends to acquire a customer, dropping from around $273 to $216, and is now squeezing out another 54 cents per month per customer line. With around 2.6 million customer lines, it's not chump change, but it's not booming profits either.

Vonage will resell Covad's 3 to 6 Mbps DSL service to residential and small business customers and CEO Jeffery Citron said there would be an associated higher-level SLA for VoIP service delivered over the lines. Citron said the company gets "a thousand calls" per month from new customers asking for more than just VoIP service, but such inquiries have to be balanced against the availability of Covad's DSL offerings in different markets.

Covad gets the benefit of a company with a well-known consumer brand that continues to spend a lot of money to acquire customers. It also gets a channel to replace the CompUSA reseller deal it signed in March 2006; the Big Box chain folded at the end of 2007.

For more:
- Read Vonage First Quarter 2008 Results [3]
- Read the Covad Vonage partnership [4] announcement

Related articles:
Vonage lands $215 million in debt [5] financing
Vonage legal chief departs after busy year [6]
Just how bad can things get at Vonage? [7]
Vonage beefs up customer service management [8]