Vonage launched VonagePro which allows customers to utilize a Vonage softphone in synch with their home phone. VonagePro keeps customers “connected” by allowing simultaneous ring of a customer’s home phone and softphone. The softphone client, branded as Vonage Companion, resides on a customer’s PC or laptop and can make and receive telephone calls. The softphone can be tied to an existing home phone number. VonagePro will be priced at $34.99/month and includes Vonage’s Residential Premium Unlimited Plan.

Vonage has a deal in principle to refinance the debt that is threatening to bankrupt the company later this year in December. A new financing deal structure will be lead by Silver Point Finance. It’s a fairly complex deal, requiring Vonage to gain additional financing to cover the total $253 million in debt coming due this December. Under the agreement, Silver Point will provide $125 million, and will work with Vonage to raise the remainder. Vonage may have to tap its dwindling cash reserves to close the gap. Vonage has been facing certain bankruptcy for some time, and has made similar announcements in the past few months, only to have to come back to the drawing board. Will this announcement follow suit? It’s tough being the company that pushed VoIP into the mainstream and provided early competitive momentum in the telecom marketplace. What are the odds that they will make it?

Comcast and Vonage announced a “cooling off” agreement, where the two competitors will “address the reasonable network management of Internet services.” The move by Comcast is a response to their recent bandwidth throttling strategy, which raised eyebrows at the FCC. The throttling attempts were more targeted at peer-to-peer traffic generated through sites like Bittorrent. These type of traffic shaping tactics don’t bode well for Vonage and other “bring your own broadband” VoIP providers that ride Comcast’s broadband pipes into the home.

“Although we’re competitors with Comcast, this understanding helps our two companies work together to balance the needs of network management with consumers’ ability to freely access the services, applications and content of their choice,” said Louis Mamakos, Vonage Chief Technology Officer, in a joint press release. Comcast has made similar overtures to Bittorrent. Reaching out to Vonage and Bittorrent buys Comcast some cover at the FCC as they try to figure out a way to manage Internet traffic more to their liking and their wallet. Do you think agreements like this mean anything, or do they just make great press release fodder?

Vonage announced they will begin marketing DSL service through a reseller arrangement with Covad. The new service will be branded Vonage Broadband, and is expected to be offered by the end of the year. Vonage will offer two DSL packages, one at 3 Mbps and another at 6 Mbps. Vonage states in their press release, “This offering will expand Vonage's competitive position in the marketplace by integrating these services for customers who prefer this option.”

Give Vonage credit – they’re not rolling over and playing dead, despite their considerable and well publicized challenges. This new arrangement may help them address one of their most daunting issues – having to depend on their competitors for a broadband pipe into their customer’s homes. Cable and telecom companies provide the vast majority of access for Vonage to their subscriber base. But of course, those same companies offer competing voice services and aren’t exactly willing transporters of Vonage service. That being said, it’s still a significant stretch for either existing Vonage subscribers to switch broadband service providers or new subscribers to accept broadband from Vonage over the status quo of DSL, cable modem, or increasingly, FTTH. Time will tell if this resale arrangement makes any difference. For Vonage, at least it broadens their scope and capabilities, and gives them a bundle to sell. Who knows, maybe the triple play is next for Vonage. Perhaps Jeff Citron and Charlie Ergen of DISH Network are exchanging emails already.

Vonage, the VoIP service provider pioneer, has apparently been given a lifeline by some unnamed financiers. Vonage has $253 million in debt due this coming December, and it’s widely believed that it could be a crippling blow to the company if not refinanced. Vonage reports that it has a letter of intent for new private debt financing for $215 million, which should conceivably be enough to allow Vonage to continue as a going concern. Vonage is not completely out of dangerous water yet. Even its own press release says, “The letter of intent is a proposal that will be used as a basis for financing and does not constitute a commitment.” The terms of the debt placement will be under great scrutiny as well. If they are too onereous, Vonage may not be able to effectively operate under them.

Vonage’s fate, whichever way it ends up, will have serious competitive implications. Should it go out of business, there will be over 2.5 million VoIP subscribers up for grabs, along with serious public relations damage to remaining pure play VoIP service providers. Should they remain in business, they will continue to impact the competitive landscape with their assault (albeit less aggressive) on incumbent phone and cable companies, offering a legitimate voice alternative.

The speculation of Vonage’s demise has been present almost since the company’s founding. There’s probably an odds book in Vegas on the subject. The Wall Street Journal is adding some fuel to the speculation with a recent article that highlights the latest concern. Vonage’s auditor, BDO Seidman LLP is raising “substantial doubt” about their ability to continue as a going concern. The doubt comes in large part due to a $250 million dollar debt payment looming for Vonage. The debt comes due in December 2008. They obviously don’t have the assets to settle that debt and are looking for ways to refinance it in an incredibly shaky credit environment. As for now, Vonage reports in a recent SEC filing that they ended 2007 with a $217 million working capital deficit.

Vonage has had a significant impact on the competitive landscape. You don’t even need to include their 2.4 million+ subscribers to include them in the VoIP pioneer playbook. Their bigger impact was the fight they brought to the arena, by taking on behemoth incumbent phone and cable companies with a competitive voice product. Some will argue that Vonage brought VoIP to the mainstream. Others will argue that they are “parasites,” riding the networks of their competitors with an inferior product. Whatever the argument, there is no denying their place in competitive telecom history. They’re certainly not dead yet, but it doesn’t look too promising for them. I suspect that Vonage wears this current struggle, as well as their numerous past ones, as a badge of honor. One that they believe they will surely overcome. Stay tuned.

Vonage’s track record with issues involving courts and lawsuits hasn’t been the greatest. They’ve lost or settled a number of patent disputes in the past 18 months. Now they can put one in the win column. A U.S. District Court for Nebraska ruled in Vonage’s favor against the Nebraska Public Service Commission in the matter of Nebraska's state universal service fund (USF). The court ruled that Vonage qualifies as a “nomadic” VoIP provider and therefore is not required to make payments into Nebraska’s state USF. The court based its arguments, in part, on precedents of so called nomadic VoIP. Nomadic VoIP service allows customers to take their VoIP wherever they go, provided there is a broadband connection. For example, a nomadic VoIP user can take their VoIP broadband adapter on a business trip, connect it to a hotel’s broadband Internet connection, and presumably make and receive phone calls over their VoIP service. Their phone number remains the same, and it doesn’t matter where that hotel is geographically.

The ruling may add an important precedent for USF and VoIP. Other states are also pursuing similar state USF lawsuits with Vonage. This ruling makes those other efforts much more difficult to win. I’m not a lawyer (and I didn’t stay at a Holiday Inn Express last night), but I would guess this ruling could impact federal USF efforts as well, especially since it was passed out from a federal court. Maybe I’m off base there, but I would assume Vonage probably is pumping its chest today and exploring all its options relative to USF obligations. This ruling may provide Vonage with some much needed competitive advantage, however slight it may be.

Vonage reported fourth quarter 2007 results, and had somewhat positive news, but with one big looming issue. They posted gains in subscribers and revenues, and had a substantially lower loss of $11 million dollars, compared with $117 million from the previous year. In fact their financial metrics beet most Wall Street analyst expectations. But there are serious concerns among analysts having to do with Vonage’s debt. They have a $250 million debt payment that may come due by the end of the year. Given the overall market’s credit crunch, Vonage could have an extremely difficult time refinancing that debt. They are in no position to pay it off outright. According to an article in Forbes magazine, “the company's auditors said they will include a going-concern statement in Vonage's annual report to investors, if the company's doesn't refinance by the time the report comes out.” Ouch!

It seemed real safe to pile on Vonage the past few months. With the parade of patent lawsuits and the black eye of VoIP service disruptions, many analysts (myself included) weren’t giving them much of a shot to survive. With all of those issues, it seems rather remarkable that Vonage’s latest quarterly report reveals net subscriber additions of 78K (compared to 57K during the same period last year), and a grand total of 2.5 million subscribers. By my estimation that makes Vonage a top 10 U.S. “phone” company, in terms of access lines.

I certainly would not have predicted that Vonage could add 21K more subscribers in the third quarter of 2007 than they did comparably in the third quarter of 2006. Given all of the negative press of the patent lawsuits and negative VoIP news (Skype outage and SunRocket demise), you would expect Vonage to have real trouble beating previous numbers. If they can do this well during times of trouble, how well will they do with the patent troubles behind them? Vonage seems to have gained focus on operational success and shed the “hype” machine factor. They spent 32% ($62 million total spent) less on marketing during third quarter 2007 than a year ago, and marketing costnow represents one third of their total revenue (compared to 56% a year ago). I’m certainly not prepared to suggest Vonage has totally escaped all their troubles. They have a long way to go before they are a profitable telecom service provider. But they have weathered a storm, and probably have gained some confidence as a result. Their impact on the competitive telecom environment is not over.

Recent news out of eBay is that skype hasn’t turned out to be the goldmine that they hoped. Skype co-founder and CEO Niklas Zennstrom stepped down as CEO and eBay wrote off $1.4 billion of the original $2.6 billion Skype investment. You really have to feel for Zennstrom and his co-founders. Instead of walking away with $1.7 billion (per the incentives in the original buy out deal), they now only receive $530 million. I guess they’ll be anxiously awaiting the next Wal-Mart circular. This recent news adds to the mounting bad news surrounding stand alone VoIP players like Vonage and SunRocket. Is this recent example proof positive that VoIP will only flourish within the walls of established status quo companies like Comcast and Verizon? Or is this more a case of eBay “fumbling” with the jewel that skype could have become?

The troubles that stand alone VoIP companies have faced over the past year or so are, well, “troubling.” Vonage, clearly seen as a threat by traditional telecom carriers, has seen their legal bills increase exponentially as they fight multiple patent infringement suits. SunRocket could not generate enough cash flow to sustain itself. And now skype’s parent is admitting that their original vision of integrating skype’s technology and subscriber base into their active “community” has not materialized. At least not in an adequate return on investment sense. Perhaps there is a hard lesson to be learned here by all involved, including VoIP start ups. The lesson may be that beyond those of us that work in the communications industry, meaning your average consumer, VoIP is simply viewed as cheap long distance. Not as some revolutionary new way to communicate with potentially life changing experiences. I think we in the communications industry are guilty at times of believing our own “powerpointware” (or maybe drinking our own “kool aid”). If VoIP is indeed viewed as merely cheap long distance, then it will be very difficult to build a sustainable business around it alone. It may only survive as a part of something larger. I am certainly not discounting the tremendous value that IP brings to a service provider. But I am questioning whether companies can put VoIP at the center of their value proposition and survive over the long term.