Vonage 2010 Annual Report Download - page 35

M
ar
k
et
i
ng cost per gross su
b
scr
ib
er
li
ne a
ddi
t
i
on
.
M
ar
k
et
i
ng
c
ost per
g
ross subscriber line addition is calculated by dividin
g
o
ur marketin
g
expense for a particular period by the number o
f
g
ross subscriber line additions durin
g
the period. Marketin
g
e
x
p
ense does not include the cost of certain customer ac
q
uisitio
n
a
ctivities, such as rebates and
p
romotions, which are accounted
f
or as an o
ff
set to revenues, or customer e
q
ui
p
ment subsidies
,
which are accounted
f
or as direct cost o
fg
oods sold. As a result,
it does not represent the
f
ull cost to us o
f
obtainin
g
ane
w
c
ustomer. Our marketin
g
cost per
g
ross subscriber line additio
n
increased to $309.54 for 2010 from $304.52 in 2009, due primarily
to a reduction in
g
ross subscriber line additions compared to th
e
p
rior year.
E
mp
l
oyees. Emplo
y
ees represent the number o
f
personnel
t
h
at are on our pa
y
ro
ll
an
d
exc
l
u
d
e temporar
y
or outsource
d
l
a
b
or.
Re
g
ulation
.
O
ur business has developed in a relatively li
g
htl
y
re
g
ulated environment. The United
S
tates and other countries,
h
owever, are examinin
g
how VoIP services should be re
g
ulated
.
T
he November 2010 order by the F
CC
in response to a request b
y
Kansas and Nebraska that
p
ermits states to im
p
ose state univer
-
sal service
f
und obli
g
ations on VoIP service, discussed in Note 1
0
t
o our
f
inancial statements, is an example o
f
e
ff
orts by re
g
ulator
s
to de
t
e
rmin
e
h
o
wV
o
IP
se
rvi
ce f
it
s
int
o
th
e
t
e
l
eco
mm
u
ni
ca
ti
o
n
s
re
g
ulatory landscape. In addition to re
g
ulatory matters that
directly address VoIP, a number o
f
other re
g
ulatory initiative
s
could impact our business. One such re
g
ulatory initiative is net
n
eutrality. In December 2010, the FCC adopted a revised set of
n
et neutrality rules
f
or broadband Internet service providers
.
T
h
ese
r
u
l
es
m
a
k
e
it m
o
r
ed
i
ff
i
cu
lt
fo
r
b
r
oadba
n
d
Int
e
rn
e
t
se
rvi
ce
providers to block or discriminate a
g
ainst Vona
g
e service. Several
broadband Internet service
p
roviders have
f
iled a
pp
eals o
f
th
e
FCC’s new rules at the D.C. Circuit Court of Appeals alle
g
in
g
tha
t
t
he FCC lacks authority to apply its rules to broadband Internet
service providers. See also the discussion under “Re
g
ulation” i
n
N
o
t
e
1
0
t
oou
r
f
in
a
n
c
i
a
l
s
t
a
t
e
m
e
nt
sfo
r
ad
i
scuss
i
o
n
of ce
rt
a
i
n
ot
h
er re
g
u
l
atory
i
ssues t
h
at
i
mpact us
.
OPERATING REVENUES
O
peratin
g
revenues consists of telephony services revenue
and customer equipment and shippin
g
revenue
.
Telephon
y
services revenue
.
S
ubstantially all of our operatin
g
r
evenues are telephon
y
services revenue. In the United
S
tates, w
e
c
urrently o
ff
er
f
ive residential plans, “Vonage World”, “Residentia
l
P
remium Unlimited”, “Vona
g
e Pro”, “Basic 500,” and “Vona
g
e
L
ite”. We also offer two mobile plans, “Vona
g
e World Mobile” and
“
Vonage Mobile Pay per Use”, and two small office and hom
e
o
ffice callin
g
plans, “Small Business Premium Unlimited Minutes”
a
nd “
S
mall Business Basic 1500 Minutes.” Each of our unlimited
p
lans other than our Vonage World plan offers unlimited domesti
c
c
alling as well as unlimited calling to Puerto Rico, Canada, and
s
elected Euro
p
ean countries, sub
j
ect to certain restrictions. Eac
h
o
f our basic plans offers a limited number of domestic callin
g
minutes per month. We also offer international calling plans tha
t
a
re
b
un
dl
e
d
w
i
t
h
our
R
es
id
ent
i
a
lP
rem
i
um
U
n
li
m
i
te
dpl
an an
d
e
nable a customer to make calls to a chosen international re
g
ion.
W
e offer similar plans in
C
anada and the United Kingdom. Th
e
“
Vonage World” plan, now available in the United
S
tates and
C
anada, offers unlimited callin
g
across the United States an
d
P
uerto Rico, unlimited international callin
g
to over sixty countries
including India, Mexico, and
C
anada, subject to certai
n
r
estrictions, and
f
ree voicemail to text messa
g
es with Vona
g
e
V
isual Voicemail. Under our basic plans, we char
g
eonape
r
minute basis when the number of domestic calling minutes
included in the plan is exceeded for a particular month. Interna
-
tional calls
(
exce
p
t for calls to Puerto Rico, Canada and certai
n
E
uropean countries under our unlimited plans and a variety of
c
ountries under international calling plans and Vonage World
)
ar
e
c
har
g
ed on a per minute basis. These per minute
f
ees are no
t
included in our monthly subscription fees. In October 2009, w
e
launched Vonage Mobile, our first mobile calling application fo
r
s
mart phones. Vonage Mobile is a
f
ree downloadable applicatio
n
that provides seamless, low-cost pay-per-use international callin
g
w
hile on Wi-Fi or cellular networks, dependin
g
on the device. In
D
ecember 2009, we began offering Vonage World Mobile using
this mobile callin
g
application. Bundle discounts are provided
f
o
r
cus
t
o
m
e
r
s
wh
o subsc
ri
be
t
obo
th
ou
rr
es
i
de
nti
a
l
a
n
d
m
ob
il
e
V
onage World plans. In
S
eptember 2010, we launched the Von-
a
ge World Canada plan, the first calling plan in Canada to offe
r
u
nlimit
ed
int
e
rn
a
ti
o
n
a
l
ca
ll
s
t
o
l
a
n
d
lin
es
in
o
v
e
r
60 cou
ntri
es fo
r
a
f
lat rate.
W
e derive most o
f
our telephony services revenue
f
ro
m
monthly subscription fees that we charge our customers unde
r
o
ur service plans. We also offer residential fax service, virtua
l
p
hone numbers, toll
f
ree numbers and other services, and char
ge
a
n additional monthly fee for each service.
O
ne business fax line
is included with each of our two small office and home office
p
lans, but we charge monthly
f
ees
f
or additional business
f
a
x
lines. We automatically char
g
e these
f
ees to our customers’ credi
t
c
ards, debit cards, and electronic check pa
y
ments, or E
C
P,
mont
hl
y
i
na
d
vance.
W
ea
l
so automat
i
ca
ll
yc
h
arge t
h
e per m
i
nut
e
f
ees not included in our monthly subscription
f
ees to our custom-
e
rs’ credit cards, debit cards or E
C
P monthly in arrears unles
s
t
h
e
y
excee
d
a certa
i
n
d
o
ll
ar t
h
res
h
o
ld
,
i
nw
hi
c
h
case t
h
e
y
ar
e
ch
arge
di
mme
di
ate
l
y
.
B
y collecting monthly subscription fees in advance and cer
-
tain other charges immediately a
f
ter they are incurred, we are abl
e
t
o
r
educe
th
ea
m
ou
nt
of accou
nt
s
r
ece
iv
ab
l
e
th
a
tw
e
h
a
v
eou
t
-
s
tan
di
ng, t
h
us a
ll
ow
i
ng us to
h
ave
l
ower wor
ki
ng cap
i
ta
l
requ
i
re-
ments.
C
ollecting in this manner also helps us mitigate bad debt
losses, which are recorded as a reduction to revenue. I
f
a
c
ustomer’s credit card, debit card or E
C
P is declined, we
g
en-
e
ra
ll
y suspen
di
nternat
i
ona
l
ca
lli
ng capa
bili
t
i
es as we
ll
as t
he
c
ustomer’s ability to incur domestic usage charges in excess o
f
their plan minutes. Historically, in most cases, we are able to cor
-
r
ect the problem with the customer within the current monthl
y
bill-
ing cycle. If the customer’s credit card, debit card or E
C
P coul
d
not be successfully processed durin
g
three billin
g
cycles (i.e., th
e
c
urrent and two subsequent monthly billin
g
cycles
)
, we terminat
e
t
h
e account.
F
rom time to time we have
g
enerated revenue by char
g
in
ga
f
ee for activating service, although we do not currently charge or
e
xpect to charge an activation
f
ee to customers. In thes
e
instances when no activation
f
ee is bein
g
collected, no customer
a
c
q
uisition costs are deferred.
C
ustomer activation fees whe
n
c
o
ll
ecte
d
,a
l
ong w
i
t
h
t
h
ere
l
ate
di
ncrementa
ldi
rect custome
r
a
c
q
uisition amounts
f
or customer e
q
ui
p
ment in the direct channel
a
nd
f
or rebates and retailer commissions in the retail channel, u
p
to but not exceeding the activation fee, are deferred and amor
-
t
i
ze
d
over t
h
e est
i
mate
d
average customer re
l
at
i
ons
hi
p per
i
o
d
(
“customer life”
)
. The amortization of deferred customer e
q
ui
p
-
ment is recorded to direct cost of
g
oods sold. The amortization of
d
eferred rebates is recorded as a reduction of telephon
y
service
s
2
8
VO
NA
G
E ANN
U
AL REP
O
RT 2010