Troubled VoIP pioneer Vonage issued its Q1 07 earnings report today and the news wasn’t, surprisingly, totally bad. As it has promised to do in the past, Vonage continued to narrow its losses, even in the face of royalty costs paid to Verizon following its loss to the telco in a much-publicized lawsuit.
Vonage posted a loss of $72.3 million, down 15% year-over-year even with the new, added royalty charge of $10.4 million for the quarter. Vonage will pay royalties to Verizon on certain technologies that the telco contends it owns, although the funds are being held in escrow and will be returned to Vonage if the VoIP provider ultimately prevails in the courts.
That’s the good news, namely losses are down. The bad news: Vonage’s growth continued to cool. During the quarter, the company added 165,646 net new customers, down 50% from Q1 06 net adds and basically unchanged from the net adds gained during Q4 06. Gross subscriber line additions during the quarter were 332,493, twice the number of net adds, the widest disparity between gross and net adds Vonage has experienced to date.
During Vonage’s earnings call, interim CEO Jeffrey Citron blamed the negative media coverage for Vonage’s slow growth. “The Verizon lawsuit has consumed significant financial and human resources and the associated media coverage has had an impact on our business,” he said.
Citron also said that Vonage has developed “work-arounds” that obviate the need to use the disputed patented technology, meaning that Vonage might survive even if it loses all of its legal appeals. “I believe we have workable designs for the 574 and 711 patents and intend to begin deploying the solution to our customers shortly,” he said.
A work-around for one disputed technology dealing with wireless, the 880 patent, is in the works but won’t seemingly be deployed soon. Citron said that Vonage is confident in its legal appeal, an assessment backed up by Chief Legal Officer Sharon O’Leary.
| Selected Vonage Financial Data ($ in 000) | |||||
| 1Q06 | 2Q06 | 3Q06 | 4Q06 | 1Q07 | |
| Operating Revenues: | |||||
| Telephony services | $ 111,658 | $ 136,636 | $ 154,487 | $ 176,074 | $ 189,367 |
| Customer equipment and shipping | $ 7,225 | $ 6,742 | $ 6,235 | $ 5,389 | $ 6,573 |
| Total | $ 118,883 | $ 143,378 | $ 160,722 | $ 181,463 | $ 195,940 |
| Operating Expenses: | |||||
| Direct cost of telephony services | $ 38,424 | $ 38,946 | $ 40,272 | $ 52,205 | $ 55,566 |
| Royalty | na | na | na | $ 51,345 | $ 10,415 |
| Total Direct Costs of Telephony Services | $ 38,424 | na | na | $ 103,550 | $ 65,981 |
| Direct cost of goods sold | $ 17,580 | $ 16,047 | $ 16,934 | $ 12,169 | $ 13,333 |
| Selling, general and administrative | $ 52,875 | $ 66,109 | $ 72,052 | $ 81,790 | $ 90,992 |
| Marketing(1) | $ 88,288 | $ 90,164 | $ 91,316 | $ 95,581 | $ 90,850 |
| Depreciation and amortization | $ 4,959 | $ 5,740 | $ 5,946 | $ 7,032 | $ 7,859 |
| Total | $ 201,286 | $ 217,006 | $ 226,520 | $ 248,778 | $ 269,015 |
| Net loss | $ (85,160) | $ (74,136) | $ (62,184) | $ (117,093) | $ (72,334) |
| Selected Vonage Operational Data | |||||
| 1Q06 | 2Q06 | 3Q06 | 4Q06 | 1Q07 | |
| Gross subscriber line additions | 421,890 | 377,005 | 359,148 | 312,094 | 332,493 |
| Net subscriber line additions | 328,279 | 255,936 | 204,591 | 166,267 | 165,646 |
| Subscriber lines | 1,597,317 | 1,853,253 | 2,057,844 | 2,224,111 | 2,389,757 |
| Average monthly customer churn | 2.1% | 2.3% | 2.6% | 2.3% | 2.4% |
| Average monthly revenue per line | $ 27.7 | $ 27.7 | $ 27.4 | $ 28.3 | $ 28.3 |
| Average monthly telephony services revenue per line | $ 26.0 | $ 26.40 | $ 26.33 | $ 27.41 | $ 27.36 |
| Average monthly direct cost of telephony services per line | $ 8.7 | $ 7.52 | $ 6.86 | $ 8.13 | $ 9.53 |
| Marketing cost per gross subscriber line addition | $ 209 | $ 239 | $ 254 | $ 306 | $ 273 |
| Employees | 1,416 | 1,602 | 1,675 | 1,790 | 1,729 |
| CPE Subsidy | $ 24.54 | $ 24.68 | $ 29.79 | $ 21.72 | $ 20.33 |
| Direct Margin % Total Revenue | 53% | 62% | 64% | 65% | 60% |
| Source: Emerging Media Dynamics, Inc. analysis of company data. © 2007. | |||||
Posted by Cynthia Brumfield at 7:15 PM | Print | Comments (0)
This year’s big cable confab in Las Vegas was a very odd duck indeed. I’ve been going to the show for years and years and lately, over the past three or four years, it’s been a pretty predictable event.
Not this year. For one thing, a bomb exploded Monday morning in the basement of the Luxor hotel, where many of the show’s attendees were staying (me included, but I didn’t notice the ensuing ruckus — helicopters and cops everywhere, I’m told.)
But the most surreal development took place the day before. HBO’s CEO Chris Albrecht, widely credited with fueling the creative engine that has pulled the network to the peak of critical acclaim, was busted and temporarily jailed for allegedly assaulting his girlfriend in public. This bizarre event was the talk of the show, an unfortunate bit of timing because the cable industry, more than most businesses, relies on its annual convention for self-congratulation, public promotion of accomplishments and all-around pride.
In the press room, at receptions, during elaborate dinners hosted by cable networks, everybody was talking about it but nobody knew the details, which are now leaking out. Albrecht, it seems, grabbed his girlfriend by her neck and tried to drag her to the entrance of the MGM Grand hotel in the wee hours of Sunday morning following the record-breaking pay-per-view Mayweather-de la Hoya fight hosted by HBO.
Albrecht’s explanation was that the woman “pissed me off” and the officers had to physically wrest the man away from her. In an effort to smooth out the shock, Albrecht subsequently took a leave of absence blaming relapsed alcoholism for his behavior.
But, and here’s the point of this post, The Los Angeles Times discovered that Time Warner paid $400,000 to $500,000 to another woman assaulted by Albrecht back in 1991, an incident kept quiet for 16 years, during which Albrecht rose through the ranks of HBO to become its top man. Faced with public awareness of this earlier payout, Time Warner had no choice but to fire Albrecht.
My question is: why did Time Warner allow a known batterer, one that had already cost the company a purported $500,000 in hush money, to stick around for so long? Granted, Albrecht was a valued executive in terms of making HBO the prestigious money-maker it became. But did no one, including current Time Warner President Jeff Bewkes, who was the head of HBO at the time of the payout, question the wisdom of keeping a batterer, the lowest form of person in society, in the decision-making ranks of the company?
Apparently not. What they did instead was enable Albrecht to dodge the consequences of his behavior and the upshot is the sorry situation Time Warner finds itself in today. They swept everything under the rug.
I wonder if the situation would be the same if Albrecht had assaulted a male, say, a fellow executive, back in 1991. I sincerely doubt it. He would have been tossed out on his ear lickety-split. But because he assaulted a woman, Time Warner executives decided to dole out cash rather than get rid of a liability. That’s sad and sickening.
Albrecht’s ouster is occurring a time of vulnerability for HBO. That lodestar of TV artistry, The Sopranos, is coming to an end and the network is casting about to regain its footing as the leader in high-quality, intelligent and thoughtful entertainment.
If HBO stumbles and falls because it has lost its bearings, Bewkes and Time Warner Chairman CEO Dick Parsons and all the other leaders at Time Warner who, in essence, condoned Albrecht’s battering, have nobody but themselves to blame. Albrecht is a beast, or so it seems, but Bewkes and Parsons and everybody else who matters have seemingly been protecting him all these years.
Posted by Cynthia Brumfield at 11:02 AM | Print | Comments (0)I got to Las Vegas’ McCarran airport this morning with plenty of time to do a little bit of blogging after the NCTA show. But, as is too painfully often the case, the very bad public Wi-Fi connection at McCarran combined with Microsoft’s hijacking of my laptop for the installation of its latest updates left me with no ability to post an item on yesterday’s dazzling demo by Comcast CEO Brian Roberts of cable’s new super-fast high-speed Internet technology called DOCSIS 3.0.
In the interim, it seems that Om Malik telepathically wrote my post for me. Om points out that the scorching Internet speed Roberts demo’ed at a general session at the NCTA show “isn’t really coming to your home anytime soon.”
DOCSIS 3.0 is cable’s next iteration of its phenomenally successful cable modem standard, and the lingo applied to it is “wideband” to differentiate the technology from plain-old broadband service (POBS?). Using multiple cable channels in a process called channel-bonding, instead of the single channel used today, cable’s wideband cable modem can achieve top download speeds of 150 Mbps, 200 Mbps or whatever the market will bear. (One ugly secret of DOCSIS 3.0 is the paltry upload speeds it supports.)
In a reprise of a similar demo Roberts conducted before the NCTA crowd back in 1996, when he showed off what was then plain old cable modems (POCMs?), Roberts used the channel-bonding technology to download the entire Encylopedia Britannica plus a Merriam-Webster dictionary in 3 minutes and 52 seconds, an effort that would entail 3 hours and 12 minutes over a standard cable modem.
“We’re going to unleash a whole new era of video, voice and ultra high-speed services,” Roberts said. But, and it’s a big drawback: DOCSIS 3.0 modems won’t be ready for years, two at least. When Roberts demo’ed the original DOCSIS modem back in 1996, the industry was on the cusp of deploying it, and if memory serves me right, TCI (now part of Comcast) already was testing cable’s new high-speed service commercially.
The modems were out there back in 1996, even if the mass manufacturing of the devices had yet to begin. The wideband cable modems won’t hit the market until the end of 2008, at the earliest. So Roberts was showing off a technology that consumers won’t be able to use any time soon. (That didn’t stop reporters from eating it all up anyway.)
Moreover, unlike in 1996, some technologists are privately grumbling about the DOCSIS 3.0 standard, saying that it’s not a long-term solution to cable’s capacity crunch. The day before Roberts’ demo I had several discussions at the NCTA show with folks who are knowledgeable about cable’s need for speed and whether DOCSIS 3.0 will do the trick. Nope, they said, at least not in the short-run. Cable needs all the extra capacity it can get right now to deploy high-definition channels and nobody wants to free up space for the very fast high-speed service, even if the modems were ready.
So, don’t get too excited about cable’s high-speed wideband service just yet.
Update: Here’s a YouTube video of Roberts’ demo.
Posted by Cynthia Brumfield at 12:02 AM | Print | Comments (0)
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