Posted by: Olga Kharif on August 5, 2009
Web-calling service provider Vonage lost more subscribers in the second quarter, the company reported on Aug. 5. Vonage lost 89,000 customer lines, and ended the quarter with 2.5 million lines. Its user turnover rose both sequentially and year over year.
Why is Vonage losing subscribers? The company’s management blamed poor economy and wireless substitution. Personally, I don’t think the economy has anything to do with it: In tough economic times, consumers look to slash their expenses, including phone bills, and Web-calling providers, which offer a way to do just that, tend to flourish. Just look at Comcast: The company’s Web-calling subscriber base grew 33% in the first quarter year over year (results for the second quarter are yet to be released), to 6.8 million people. Vonage lost subscribers in the first quarter as well. Clearly, Comcast is doing a better job drawing in and retaining customers.
Wireless substitution, though, can have had a serious impact on Vonage’s business. More than 25% of the U.S. population has already axed home phone services, and uses cell phones for all calls. And that percentage is still growing. Instead of signing up for Vonage, or another Web-calling service, many users simply buy additional wireless minutes and go all-wireless.
Vonage is doing many of the right things to address this changing marketplace. It’s planning to release cell-phone apps, which could potentially dramatically expand the service’s user base. The company is also doing a fairly good job controlling costs. It just eeked out its first quarterly net income, of $2 million.