Answering a customer's call tops the list of changes that upstart Internet phone company Vonage Holdings Corp. is making to revive its operations.
When Vonage founder Jeffrey Citron stepped back into the role of chief executive officer in April, 2007, he realized the six-year-old firm had lost its way amid legal battles with big phone companies and a growth spurt. The losses were mounting and its stock falling.
“We grew very, very fast, and along the way as a company a few things got out of hand,” Mr. Citron admitted yesterday in an interview after visiting employees in Toronto.
To start with, there was the way it treated customers. Its subscriber base leaped to 2.2 million in 2006 from 1.3 million in 2005. But Vonage didn't pour more money into customer service systems that could support that bigger client base.
That led to long wait times, prompting some clients to hang up the phone and cancel their service. Customer turnover, or churn, was on the rise.
At the same time, Vonage spent too much on ineffective advertising aimed at building its brand name amid fierce competition from cable operators that were also moving into the phone business, Mr. Citron said. Its marketing budget jumped to $365-million (U.S.) in 2006 from $56-million in 2004, eating up a lot of the revenue Vonage brought in.
Mr. Citron spent his first year back fixing the business. He is rolling out new software for the company's customer service operations to make sure there are enough bodies in the seats and to redirect calls to call centres that are less busy.
The company is also getting a better handle on its marketing, which actually dipped to $284-million last year. For example, Vonage is airing its ads on regional, rather than national television. And in Canada, it is moving some advertising from TV to the Internet.
As for past patent lawsuits, they are behind Vonage after the company settled with Verizon Communications Inc., Sprint Nextel Corp. and AT&T Inc.
Now Mr. Citron is ready for the next step – selling more services to its customers. It's rolling out new products, include an international long-distance calling plan.
“Once we fix the fundamentals and get the last of our issues resolved, we will start to step on the gas and grow faster,” he said.
Investors don't appear convinced. The company's stock isn't exactly in recovery mode, some 89 per cent below its initial public offering price of $17 in 2006.
Perhaps they're scared of the cable kings. In Canada and the U.S., cable operators have made quick inroads in the phone market with a bundle of different communications services that Vonage can't match.
The company doesn't release separate figures for Canada. Convergence Consulting, however, estimates that independent voice over Internet protocol (VoIP) phone companies had 150,000 residential phone customers in Canada at the end of last year, with Vonage accounting for more than half of that total. Canadian cable firms, in contrast, had 2.4 million residential phone subscribers, according to Convergence.
And there is an even bigger potential land mine. Vonage has $253-million worth of convertible notes that are coming due in December. It is in talks with bondholders, but has warned that serious problems could result if it can't work out a solution.
Mr. Citron, who owns about a third of Vonage's shares, believes everything will work out.
He says that alongside the phone and cable companies, there will always be a place for Vonage.
As for the debt issue, he said a solution will emerge as the global credit crunch resolves itself.
“It's a big deal for us, but it's not a big deal in the debt markets,” he said. “So as those markets start to free themselves up, I feel confident that we'll be able to get a deal done.”
© The Globe and Mail
