Vonage today announced an agreement for a $220.3 million financing which is seen by many experts as crucial to its survival. Silver Point Finance LLC, which already holds a $216 million financing stake in Vonage, will lead the financial deal, which consists of $130.3 million in senior secured first-lien credit, $72.0 million in senior secured second-lien credit and the sale of $18.0 million of convertible secured third-lien notes. The proceeds will be used to help refinance $253 million of debt.Analysts and bloggers such as the VoIPPrincess, have pointed out that the recent financial crisis and credit crunch made Vonage's refinancing efforts very difficult. I too have had my doubts whether Vonage could secure more financing in this tight credit crunch market.
"We are pleased to reach definitive agreement on this refinancing at a time of unprecedented volatility in the credit markets," said John Rego, Vonage's chief financial officer. "This agreement provides clarity to our partners and suppliers regarding the Company's liquidity position in these challenging financial times," he said.
Even with the financial deal, Vonage still faces tough challenges ahead. It still has to replace 1/3 of its customer base due to churn and faces tough competition from Cablecos and phone companies that offer bundled & discounted triple play packages. Vonage started many years ago at $39.99/month (unlimited plan) if I recall and today's unlimited plan has dropped to just $24.99/month. As voice minutes continues its spiral towards $0, it becomes increasingly harder for single play players like Vonage to be profitable.
That said, 8x8 is a single-play VoIP company, which offers Packet8 residential and business VoIP services and they continue to grow. 8x8 doesn't get nearly the media attention that Vonage does, yet continues to perform well. Part of their success is that 8x8 has targeted businesses with their Virtual Office, Virtual Trunking, and Packet8 Hosted Key system offerings.
According to the VoIPPrincess, "In the last five years, 8x8 revenues grew 460.3 percent while Vonage's grew 0.0 percent. 8x8 made $700,000 during the first quarter of this year. Vonage lost $8.9 million and is shopping for a $215 million refinancing deal to stay out of bankruptcy. 8x8 holds 73 patents. Vonage just got its first."
I've talked to 8x8 over the past several years and when I remarked how much Vonage was spending on advertising and customer acquisition, 8x8 told me several times they did not intend to try and match Vonage's huge marketing campaigns. I recall commenting to 8x8, "I'm reminded of the turtle vs. the hare. Slow and steady wins the race, right?" 8x8 agreed with the analogy. While Vonage just got an injection of cash/adrenaline to keep the hare running, one has to wonder if and when the hare will crash and burn. If it does, I don't think that spells the death knell for single-play VoIP providers just yet. It does however signal the end of high-flying, high-spending, VoIP (woo hoo) TV commercials on every other minute, which is good news for me, since I'm sick & tired of fast forwarding my DVR past those annoying woo hoo commercials. Lastly, I think 8x8 might just be in prime position to pick up many Vonage customers should Vonage fail.
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