Rough Week For Vonage?

According to a Yankee Group press release, broadband telephony player Vonage has earned a sizable first-mover advantage in the burgeoning residential VoIP market, but that might not be enough to fight off the competition from RBOCs, Cable companies, and IXCs.

According to the release, “In a year, Vonage signed up 100,000 users, creating a level of angst among broadband providers, and renewing interest in broadband VoIP among the investment community."

“Vonage has successfully marketed itself, and its concept. The company has created a grand illusion in the marketplace,” says Lindsay Schroth, Broadband Access Technologies senior analyst. “Most service providers are not only familiar with this small, privately held company, but feel threatened by the start-up and its approach to offering telephony services.”

“However, we anticipate Vonage will become a victim of its own success. Their eventual downfall will come because the company threatens the RBOCs, IXCs, and MSOs. As the incumbent service providers and MSOs offer wide- scale residential VoIP services with QoS at the same price point as Vonage, we believe the start-up will find it difficult to compete. Today, some RBOCs require their customers to subscribe to their telephony services to receive broadband. Tactics such as this, as well as the increased focus on the triple play and bundling discounts, will aggravate Vonage’s problems,” adds Schroth.

Ouch.

No wonder Vonage was upset last March when AT&T launched its CallVantage service.

In fact, it’s not been a good week for Vonage. Just last Thursday, the NY Public Service Commission ruled that Vonage, which offers competitive telephone services to New Yorkers through VoIP technology, is a telephone corporation as defined by New York State Law and, therefore, must obtain a Certificate of Public Convenience and Necessity (CPCN).

The Commission did emphasize that while they were not interested in stifling the growth of a new technology, they were bound by their core public interest concerns, including making sure that public safety concerns and network reliability are met. So while Vonage will not be subject to economic or rate regulation, they do need to obtain authorization from the Commission to provide telephone service and must abide by certain other regulations as well.

It’s still too early to write Vonage off and relegate them to the dustbin of techno-history, but perhaps this should serve as a wake up call to Jeff Citron and his team. There’s lots of time to build on the early advantage, and with the rules of this game still in flux, Vonage may yet be able to stave off its competitors.