Vonage subscribers rise as provider sets sights on international service growth

What a difference two years has made for Vonage (NYSE: VG).

Not only has the once-troubled service provider settled all of its outstanding lawsuits, but it reported this week it added 6,000 new lines in Q4 2010, the first quarterly subscriber gain it has seen in over two years.

Complementing its net add gains, Vonage has reduced its customer churn by 2.4 percent--the lowest it has seen in four years. In Q4 2010, Vonage expects to earn $40 million in EBITDA for the fourth quarter, and expects to gain customers in 2011.

Increasing international focus
So where does Vonage see the future growth coming from in 2011 and beyond?

Speaking at this week's Citi 21st Annual Global Entertainment, Media & Telecommunications Conference, Vonage's CEO Marc Lefar outlined three areas of future growth: international wireline and wireless-based long-distance services, mobile services and expanding into additional international markets.

While it's not totally shifting away from the domestic subscribers, Vonage believes that the biggest growth opportunities lie in the international VoIP long distance service market-one that it decided to increase its focus on about 18 months ago.

A big piece of that focus is on targeting ethnic users that perhaps live in the U.S. with relatives in other countries via its Vonage World offering. The primary target of this ongoing initiative is the ethnic and SMB markets, which have had little choice to use expensive traditional incumbent long-distance plans, calling cards or computer-based services.

"We have had very good success with Vonage World, which includes unlimited calling to 60 countries that's bundled with unlimited domestic calling and visual voice mail for $25," Lefar said. "International long-distance callers, which have a higher lifetime value than domestic-only users, have more than tripled since the introduction of Vonage World in August 2009."

Vonage's international long-distance subscribers comprise 600,000, or 25 percent of their total customer base.

A key piece of the international calling market is focused on the ethnic market, including an initiative focused on the Spanish speaking community. The VoIP provider launched a Spanish language experience that includes in-bound telesales, full customer service, Spanish online customer service and Spanish language television advertisements.

"We're very encouraged by the initial results as we're now seeing that one-third of our current prospects are requesting to do business with us in Spanish," Lefar said.

Interestingly, Vonage's ongoing international growth has been making up for losses on its traditional domestic side. In particular, Vonage sees continued growth in the Indian and Spanish speaking segments.

"We still continue to bring in domestic growth additions, but obviously with that being barely net positive, the domestic number and having a higher churn number is being slightly offset by international which continues to accelerate."   

Vonage's timing to expand further into the international long distance VoIP market couldn't be better. A new TeleGeography report issued this week illustrated that consumer and businesses alike are cutting the traditional landline cord in favor of Skype, while traditional landline long-distance voice traffic continues to decline.

Although the TeleGeography report did not mention Vonage, it's clear that voice consumers are realizing that they have other lower-cost options besides the traditional telco to get their voice services.

A mobile play
But Vonage's international drive is not just about fixed line services alone. The ongoing build out of 3G and WiFi-based wireless services and the increasing adoption of smart phones creates another opportunity to sell its VoIP services.

With the ethnic community increasingly using mobile services to keep in touch with family and friends in their respective homelands, Vonage believes it can help lower the ethnic user's use of not only mobile voice and text services, but also social network applications like Facebook.

Last year, Vonage introduced an outbound long-distance calling service and Vonage mobile for Facebook, which enables inbound/inbound calling over WiFi and 3G to Facebook friends.   

Of course, all of these services tie back into its overlying international vision. Lefar said that Vonage's mobile roadmap "includes making mobile international calling plans accessible to a broad range mobile phones, providing alternatives to high priced international roaming services, lower-cost domestic and international text messaging services and enhancements to social community applications, including the ability to let customers to their existing mobile address book and Vonage network to keep in touch with friends and family around the world."   

For more:
- see the release
- here's the webcast link

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