Vonage 2010 Annual Report Download - page 34

M
ost tra
di
t
i
ona
l
w
i
re
li
ne an
d
w
i
re
l
ess te
l
ep
h
one serv
i
ce prov
id
er
s
and cable companies are substantially lar
g
er and better cap-
italized than we are and have the advanta
g
e of a lar
g
e existin
g
customer base. In addition, because our com
p
etitors
p
rovid
e
other services, they often choose to offer VoIP services or other
v
oice services as
p
art of a bundle that includes other
p
roducts,
s
uch as video, hi
g
h speed Internet access, and wireless telephon
e
s
ervice, which we do not o
ff
er. Further, as wireless
p
roviders o
ff
e
r
more minutes at lower prices, better covera
g
e, and companion
landline alternative services, their services have become mor
e
attractive to households as a re
p
lacement
f
or wire line service. We
also compete a
g
ainst alternative voice communication providers
,
s
uch as Skype, Goo
g
le Voice, ma
g
icJack, and independent VoI
P
s
ervice
p
roviders. Some of these service
p
roviders have chose
n
to sacri
f
ice telephony revenue in order to
g
ain market share an
d
have o
ff
ered their services at low
p
rices or
f
or
f
ree. As we con-
tinue to introduce applications that inte
g
rate di
ff
erent
f
orms o
f
v
oice and messa
g
in
g
services over multiple devices, we are likel
y
to
f
ace competition
f
rom emer
g
in
g
competitors
f
ocused on simila
r
inte
g
ration, as well as
f
rom established alternative voic
e
communication
p
roviders. In addition, our com
p
etitors have
p
art
-
nered and may in the
f
uture partner with other competitors t
o
o
ff
er products and services, levera
g
in
g
their collective competitiv
e
p
ositions. We also are sub
j
ect to the risk o
ff
uture disru
p
tiv
e
tec
h
no
l
o
gi
es
.
G
ross subscriber line additions
.
G
ross subscriber line addi
-
tions
f
or a particular period are calculated by takin
g
the net sub-
s
criber line additions durin
g
that particular period and addin
g
to
that the number o
f
subscriber lines that terminated durin
g
tha
t
p
eriod. This number does not include subscriber lines both added
a
nd terminated durin
g
the period, where termination occurre
d
w
ithin the
f
irst 30 days a
f
ter activation. The number does include,
h
owever, su
b
scr
ib
er
li
nes a
dd
e
dd
ur
i
n
g
t
h
e per
i
o
d
t
h
at are term
i
-
nated within 30 da
y
so
f
activation but a
f
ter the end o
f
the period
.
N
e
t
subsc
ri
be
r lin
e add
iti
o
n
s.
N
e
t
subsc
ri
be
r lin
e add
iti
o
n
sfo
r
a
p
articular
p
eriod re
f
lect the number o
f
subscriber lines at th
e
end o
f
the
p
eriod, less the number o
f
subscriber lines at th
e
be
g
innin
g
o
f
the period
.
Subscriber lines.
O
ur subscriber lines include, as of a partic-
u
lar date
,
all subscriber lines
f
rom which a customer can make an
outbound telephone call on that date.
O
ur subscriber lines includ
e
f
ax lines and so
f
t phones but do not include our virtual phone
n
umbers or toll free numbers, which onl
y
allow inbound telephone
calls to customers.
S
ubscriber lines decreased from 2
,
434
,
896 a
s
of December 31
,
2009 to 2
,
404
,
883 as of December 31
,
2010. In
t
he fourth quarter of 2010, we added 5,848 net subscriber lines.
We believe that the decrease in our subscriber lines for the
y
ea
r
w
as pr
i
mar
il
y
d
ue to
i
ncreas
i
ng w
i
re
l
ess su
b
st
i
tut
i
on, ot
h
er com
-
petition, particularl
y
from cable companies, and reduced market
-
i
ng spending. The increase in net subscriber lines in the fourt
h
quarter was primaril
y
due to further penetration of international
ca
lli
ng mar
k
ets an
d
sta
bl
ec
h
urn.
W
e expect more gross
li
nes
in
2011 compare
d
to 2010 an
d
pos
i
t
i
ve net su
b
scr
ib
er
li
nes
i
n 2011.
A
verage mont
hl
y customer c
h
urn
.
A
verage mont
hl
y customer
churn for a particular period is calculated by dividing the numbe
r
of customers that terminated during that period by the simpl
e
average number of customers during the period, and dividing the
r
esult by the number of months in the period. The simple average
number of customers during the period is the number of custom
-
ers on the first da
y
of the period, plus the number of customers
on the last da
y
of the period, divided b
y
two. Terminations, a
s
used in the calculation of churn statistics
,
do not include custom-
ers terminated during the period if termination occurred within the
first 30 days after activation.
O
ur average monthly customer churn
decreased to 2.4% in 2010 from 3.1% in 2009. In the fourth quar
-
t
er of 2010, our average monthly customer churn was 2.4%. W
e
b
e
li
eve t
h
ere
d
uct
i
on
i
nc
h
urn
i
s
d
ue to
i
n
i
t
i
at
i
ves to
i
mprove t
h
e
customer
’
s exper
i
ence,
i
nc
l
u
di
ng on-
b
oar
di
ng an
d
networ
k
qua
l
-
i
ty, an improving economy and credit profile for new customer
acqu
i
s
i
t
i
ons, w
hi
c
hh
as pos
i
t
i
ve
ly i
mpacte
d
non-pa
y
c
h
urn, an
d
t
he value proposition of the Vonage World offer. We monito
r
churn on a dail
y
basis and use it as an indicator of the level of
customer satisfaction.
O
ther companies ma
y
calculate churn dif
-
ferentl
y
, and their churn data ma
y
not be directl
y
comparable t
o
ours.
C
ustomers who have been with us for a
y
ear or more ten
d
t
o have a lower churn rate than customers who have not.
O
u
r
churn will fluctuate over time due to economic conditions
,
com-
p
etitive pressures includin
g
wireless substitution, market plac
e
p
erception of our services, and our ability to provide hi
g
h qualit
y
customer care and network quality and add future innovativ
e
p
roducts and services
.
Avera
g
e monthl
y
revenue per line. Avera
g
e monthly revenu
e
p
er line
f
or a particular period is calculated by dividin
g
our tota
l
r
evenue
f
or that period by the simple avera
g
e number o
f
sub
-
s
criber lines
f
or the period, and dividin
g
the result by the number
of
months in the period. The simple avera
g
e number o
f
subscriber
lines
f
or the
p
eriod is the number o
f
subscriber lines on the
f
irs
t
d
ay o
f
the period, plus the number o
f
subscriber lines on the las
t
d
ay of the period, divided by two. Our avera
g
e monthly revenue
p
er line increased to $30.48 for 2010 com
p
ared to $29.49 for
2009
.
A
vera
g
e monthl
y
telephon
y
services revenue per line.
A
vera
ge
monthly telephony services revenue per line
f
or a particular perio
d
is calculated by dividin
g
our total telephony services revenue
f
o
r
that period by the simple avera
g
e number o
f
subscriber lines
f
o
r
the period, and dividing the result by the number o
f
months in the
p
eriod. Our average monthly telephony services revenue per lin
e
w
as $30.06 for 2010 compared with $28.68 for 2009. Thi
s
increase was due to an increase in the number o
f
customers sign
-
ing up
f
or higher priced rate plans, selective pricing actions w
e
i
mp
l
emente
d
a
l
ong w
i
t
h
en
h
ancements to our serv
i
ce, an
d
i
mprove
d
customer qua
li
t
y
t
h
at re
d
uce
db
a
dd
e
b
t costs
.
A
verage monthly direct cost of telephony services pe
r
li
ne.
A
verage monthly direct cost of telephony services per line fo
r
a
particular period is calculated by dividing our direct cost of tel
-
e
phony services for that period by the simple average number o
f
s
ubscriber lines for the period, and dividing the result by th
e
number of months in the period. We use the average monthl
y
d
irect cost of telephon
y
services per line to evaluate how effectiv
e
w
e are at managing our costs of providing service.
O
ur averag
e
monthl
y
direct cost of telephon
y
services per line increased t
o
$
8.40 for 2010 compared to
$
7.08 for 2009, due primaril
y
t
o
higher costs from higher international call volume associated wit
h
V
onage World, partially offset by more favorable rates negotiated
w
ith our service providers. Direct cost of telephon
y
services both
o
vera
ll
an
d
on a per
li
ne
b
as
i
s
i
s expecte
d
to cont
i
nue to
i
ncreas
e
in 2011. The drivers of this increase are international calling by our
g
rowing base of Vonage World customers and potential regu
-
l
atory term
i
nat
i
on c
h
arges
i
n certa
i
n
hi
g
h
vo
l
ume countr
i
es.
27