Fellow blogger Tom Keating reports that “a source” has just informed him that Vonage has plans to open up their Session Initiation Protocol credentials. The move reportedly would occur in March or April of this year.

Such a move would, as Tom writes, let Vonage users configure their own Vonage-compatible SIP softphones and hardphones.

The move would be a significant strategic departure for Vonage.

“One of the main reasons why Vonage has kept the SIP credentials ‘closed,’ Tom writes, is that they charge $9.99/month for their SIP softphone client, which then gives you access to your “personal SIP credentials”.

So why would Vonage even contemplate a strategic 180 degree turn?

Tom says his source tells him that Vonage is feeling strong competition from other VoIP providers, including som such as Broadvoice and SIPgate that already offer SIP credentials.

Perhaps the most direct justification for such a move, as Tom notes, would be that in opening up their SIP, Vonage would enable users of the Asterisk
open-source IP-based phone system to use Vonage for PSTN termination.

As a postscript, I note that the Vonage Forum has already opened a thread on this issue. “Awesome,” comments frequent Vonage Forum poster blakadher about the report.

Related Articles

LOS ANGELES (Reuters)-Internet telephone service provider Vonage Holdings may raise up to $250 million in an initial public offering to fund efforts to expand its subscriber base, according to a regulatory filing Wednesday.

The IPO announcement from the money-losing independent provider of VOIP (voice over IP) services comes as that fast-growing market appears to be on the verge of reaching a broader audience—and as competition from much larger companies intensifies.

Terms have not been set for the offering, expected to be led by underwriters Citigroup, Deutsche Bank Securities, and UBS Investment Bank, according to the filing with the U.S. Securities and Exchange Commission.

Vonage said in the filing that it had more than 1.4 million subscriber lines as of Feb. 8 and lost $189.6 million on revenue of $174.0 million in the first nine months of 2005. The company spent $176.3 million on marketing in the same period.

“To grow our revenue and customer base and enhance awareness of our brand, we have chosen to spend significant amounts on our marketing activities, and we intend to continue to do so,” the company said.

Vonage’s service allows a subscriber to make calls using a phone connected to a high-speed Internet line. Ninety-five percent of its customers are in the United States.

The VOIP market for voice services over high-speed Internet is estimated to grow from a range of 900,000 to 1.5 million North American consumer users in 2004 to between 8.2 million and 15.3 million users by the end of 2007, Vonage said.

“This is a play on the market growth of VOIP lines. The market is making a transition from early adopters to the mainstream,” said Francis Gaskins, president of IPO Desktop, an IPO research firm.

David Menlow, president of IPOFinancial.com, an independent research firm, said that given the strong pace of U.S. IPOs so far this year, “the timing is excellent.”

Since the first of this year, 26 companies have raised $4.27 billion in U.S. IPOs, up from the 20 companies that raised $4.08 billion at this point in 2005, according to data provider Dealogic.

Looming competition

Analysts said the tiny upstart is competing with some of the world’s largest companies, with much bigger marketing budgets and more years of expertise behind their products.

Vonage and other minnows such as SunRocket offer a replacement for residential phone service provided by fixed-line operators, who have countered with their own products. AT&T Inc.’s is CallVantage and Verizon Communications’ is VoiceWing.

Cable providers Comcast, Time Warner and Cablevision Systems are targeting home users with digital phone services.

The Web’s biggest and most profitable companies are also in the game.

EBay Inc. recently paid $4.1 billion to buy Internet-calling provider Skype, which is popular in Europe and starting to target the U.S. market.

Instant message providers Yahoo and Google, which got their start in free computer-to-computer Web-based calling, are moving into the same residential markets where Vonage competes.

All of the newcomers face growing regulatory challenges from phone companies and cable operators who want telecom regulations applied to Internet companies.

IPOFinancial.com’s Menlow said Vonage’s lack of profitability would be a turn-off for investors, but said it was a good sign that the company planned to use the proceeds of the offering to fund growth, rather than to pay back debt.

“They’re planning to expand the business and marketing, and that’s a great thing, but you’ve got a company that is clearly reminiscent of the Internet days of the 1990s. There’s a great rate of growth here, but take a look at the bottom line,” said Menlow, underscoring that the company’s net losses for the first nine months of 2005 outpaced revenue.

“People are going to have to look at this filing carefully and not become enamored with the technology,” Menlow said.

Christopher King, a telecom analyst with Stifel Nicolaus, said it is too early to predict what value the market will assign to the company, or whether Vonage will be able to generate a share price it feels is high enough to justify proceeding with the IPO.

“Clearly Vonage is spending a lot of money to grab customers,” King said. “I am skeptical as to whether it’s an effective long-term business model.”

Related Articles