Vonage - Giving Voice Away - What Next?

Nice post from new-kid-on-the-block Moshe Maeir about Vonage this morning.

Late yesterday, they issued a press release about their new LD rates. They're scary cheap - like 1 cent/minute to landlines in Israel and Mexico. Pretty hard to believe, especially as Moshe points out (and he should know) that wholesale rates to Israel are 1.1-1.2 cents/minute. On the other hand, he notes that calls to wireless numbers are more expensive, and Vonage would still make healthy margins there. Since Israelis seem to live on their cell phones, maybe there's some logic to this plan.

But maybe not. Hot off the heels of the Verizon litigation, this sure looks like a move of desperation. They recently moved to an annual price plan as well - which is in line with the likes of SunRocket, who have been doing pretty well with that tactic.

Clearly, pricing plans for residential VoIP are a moving target, and nobody is going to make money charging 1 cent/minute. It may be aggressive pricing - even cheaper than Skype - but is it smart pricing? Who are they going after with this? They're not in the LD business, and it's really a loss leader to keep subscribers from going elsewhere. And unlike the wireless world, there are no contracts here, so you really have to work hard to keep your subscribers. Prices can only get cheaper in this market, and with the Verizon tax in the picture now, margins can only get thinner.

This is not a business I'd want to be in.

As per Andy's post yesterday, I'd agree that their time and money is better spent on wireless alternatives, but that window has got to be getting pretty small now, and may even be closed.

Meanwhile, the VON in Vonage - Mr. Pulver - wasn't losing any sleep over this, having a ball at last night's Rock & Roll Hall Induction Ceremonies. Gosh, what a lucky guy - check out his pix to see what the rest of us missed.

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