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Vonage Lays an Egg

Its IPO Fails To Meet Expectations

May 25, 2006

Vonage • Appeals Court Gives Vonage a Reprieve • Vonage CEO Exits as Company Struggles to Survive • Vonage Gets a Reprieve but its Future is Murky • Judge Orders Vonage to Stop Signing New Customers • Class Action Charges Vonage Deceived Consumers • Vonage Settles New Jersey Charges • FTC Drops Vonage 911 Inquiry But Continues Telemarketing Probe • Vonage Accused Of Violating Securities Laws • Vonage Customers Chafe Under Stock Purchase Plan • Vonage IPO Fails To Meet Expectations • Vonage 911 Caller Put On Hold While House Burns Down • Consumer Complaints

Vonage, the company that pioneered Voice over Internet Protocol (VoIP), stumbled out of the starting gate Wednesday as it began selling stock as a publicly traded company.

Initially offered at $17 a share, the price fell throughout the day and closed at $14.85, a loss of nearly 13 percent.

The stock fell another 10 percent in early trading Thursday, making it one of the worst market debuts in recent memory.

Analysts say the company, which has more than one and a half million subscribers using its telephone service, faces fierce competition in the field from major cable companies, better financed and positioned in the market to provide the same services.

Not helping matters, the company has also been the subject of frequent consumer complaints about its service, as the Wall Street Journal noted in an article just days before the IPO.

In one highly publicized incident earlier this year, a Minnesota homeowner charged he was put on hold when he called 911 to report his house was on fire. As a result, Loren Velthamp of Chanhassen, Minnesota said his house burned down.

Several states have warned Vonage about deficiencies in its 911 system. Michigan recently warned the company about what he said was misleading marketing.

In a Notice of Intended Action (NIA), Michigan Attorney General Mike Cox told the company it has failed to make it clear that customers do not have access to traditional 911 service. Earlier, Texas Attorney General Greg Abbott filed a lawsuit against Vonage citing similar concerns.

In general, VoIP 911 can be unreliable. Calls made after normal business house may be misdirected to emergency-services administrative offices, where the caller gets a recorded message.

Even when the VoIP 911 call does make it to an EMS dispatcher, it sometimes lacks the information traditional phone services provide, like the caller's address and telephone number.

Last year the FCC gave VoIP providers an ultimatum to institute by September 2005 the same kind of 911 access provided to people using landlines or cell phones.

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