Vonage 2010 Annual Report Download - page 9

PART I
ITEM 1.
Busines
s
OVERVIEW
We are a leadin
g
provider o
f
low-cost communications serv-
i
ces connectin
g
people throu
g
h broadband devices worldwide.
We rel
y
heavil
y
on our network, which is a flexible, scalable
S
es-
s
ion Initiation Protocol
(
SIP
)
based Voice over Internet Protocol, o
r
VoIP, network that rides on to
p
o
f
the Internet. This
p
lat
f
or
m
ena
bl
es a user v
i
aas
i
ng
l
e
“id
ent
i
ty,
”
e
i
t
h
er a num
b
er or user
name, to access and utilize services and
f
eatures regardless o
f
how they are connected to the Internet, includin
g
over 3G, 4G,
C
able, or D
S
L broadband networks. This technolo
g
y enables u
s
t
o offer attractivel
y
priced services that provide our customers
with access to Vona
g
e voice, messa
g
in
g
, and
f
eatures, re
g
ardless
o
f
location, device, or their
f
orm o
f
Internet access
.
O
ur customers include both domestic and international lon
g
distance callers, which we classif
y
as customers who make 20 o
r
more minutes o
f
international lon
g
distance calls per month withi
n
t
heir plan. Our primary product offerin
g
is Vona
g
e World, a resi-
d
ent
i
a
l
p
l
an w
i
t
h
un
li
m
i
te
d
ca
lli
ng
d
omest
i
ca
ll
yan
d
to more t
h
a
n
6
0 countries, including India, Mexico, and
C
hina, for a flat monthl
y
r
ate. Vona
g
e World comprised approximately 40
%
o
f
our lines i
n
se
rvi
ce a
tth
ee
n
do
f2
0
1
0
.W
ebe
li
e
v
e
th
e
v
a
l
ue a
n
dco
nv
e
ni
e
n
ce
p
rovided by our Vonage World offer is particularly attractive t
o
i
nternational long distance callers compared to o
ff
ers by tradi
-
t
ional telephone service providers, wireless providers, and callin
g
card-based or P
C
-onl
y
services. To increase the visibilit
y
of ou
r
Vonage World offer to international callers, we have shifted a
n
i
ncreasin
g
portion o
f
our marketin
g
bud
g
et
f
rom broad nationa
l
advertisin
g
as we tar
g
et attractive se
g
ments o
f
the international
l
ong distance market. We also began offering an end-to-end
S
panish language experience in September 2010 and sub
-
s
equently added telesales and customer care centers in Costa
Rica and
C
hile to su
pp
ort these efforts.
We introduced our first mobile offering in late 2009, an out-
b
ound long distance calling application, and Vonage Mobile
f
o
r
Facebook in Au
g
ust 2010, enablin
g
inbound and outbound callin
g
t
o a user’s Facebook friends. We anticipate levera
g
in
g
ou
r
t
echnology to offer additional applications for mobile and other
connecte
dd
ev
i
ces to a
dd
ress
l
arge ex
i
st
i
ng mar
k
ets.
We believe that we have made si
g
ni
f
icant operational and
f
inancial pro
g
ress over the past two years providin
g
a solid
f
oun
-
dation for the future. In 2010, our core business generated sub
-
s
tantial cash
f
low driven by an aggressive
f
ocus on drivin
g
e
ff
iciencies throu
g
hout our operations, includin
g
our call centers
.
We stabilized our customer base, reducin
g
monthly churn from
3
.1% to 2.4% from 2009 to 2010, through improvements in oper-
at
i
ons an
d
customer m
i
x
d
ur
i
n
g
t
h
e year.
I
n
D
ecem
b
er 2010, we
also completed a comprehensive re
f
inancin
g
that provides us wit
h
a more efficient capital structure permitting significantly enhance
d
operating and
f
inancial
f
lexibility.
We had approximatel
y
2.4 million subscriber lines as of
December 31, 2010. We bill customers in the United States,
C
anada, and the United Kin
g
dom.
C
ustomers in the United
S
tates
represented 94% of our subscriber lines at December 31, 2010
.
OUR STRATEGY
During the past 18 months, we began shi
f
ting our strategi
c
em
p
hasis
f
rom the traditional mass domestic home
p
hone marke
t
t
o international lon
g
distance markets. The markets for interna-
ti
ona
ll
ong
di
stance are
l
arge an
d
grow
i
ng, an
d
t
h
ey a
ll
ow us t
o
l
evera
g
e our cost-e
ff
ective network by providin
g
customers a
l
ow-cost and convenient alternative to services o
ff
ered by tele
-
com an
d
ca
bl
e prov
id
ers an
di
nternat
i
ona
l
ca
lli
ng car
d
s
.
Whil
et
h
e tra
di
t
i
ona
ld
omest
i
c
h
ome p
h
one rep
l
acemen
t
market may not exhibit the
g
rowth characteristics o
f
other mar-
k
ets, it still re
p
resents a sizable addressable market and remain
s
a core component of our business.
O
ur broadband telephone
r
ep
l
acement serv
i
ces prov
id
e a comp
l
ete so
l
ut
i
on,
i
nc
l
u
di
n
g
E-911 capability and the ability to port a customer’s telephone
number, not offered by many emer
g
in
g
competitors. We believe
our ca
lli
ng p
l
ans are attract
i
ve to
d
omest
i
cca
ll
ers t
h
at are not
s
atis
f
ied with the pricin
g
and service o
f
lar
g
e telephone and cabl
e
com
p
anies.
O
ur network can be scaled relativel
y
inexpensivel
y
and
quickly to support
g
rowth. We believe our network and services
p
rovide the
f
oundation to capitalize on positive market trends b
y
enabling voice, video, and varied forms of messaging in rapidly
expan
di
ng commun
i
cat
i
ons mar
k
ets,
i
nc
l
u
di
ng soc
i
a
l
networ
k
s
.
W
e are
f
ocusin
g
on three primary
g
rowth initiatives durin
g
2
0
11
:
>
I
nternat
i
ona
ll
ong
di
stance ca
lli
ng
.Th
e tota
l
out
b
oun
d
i
nternat
i
ona
ll
ong
di
stance ca
lli
ng mar
k
et was est
i
mate
d
to
be
$
86 billion in 2010, with the United States-based
p
ortion of
the market accountin
g
for nearly
$
20 billion, accordin
g
to
r
ecent industry surveys. The large size of this market, com
-
b
ined with our abilit
y
to o
ff
er competitivel
y
priced services
d
elivered over our low-cost network, presents a si
g
ni
f
ican
t
o
pportun
i
t
y
.
W
ep
l
an to
b
u
ild
upon our ear
ly
success
i
nt
his
mar
k
et as we
h
ave a
dd
e
d
near
ly
one m
illi
on su
b
scr
ib
ers t
o
o
ur Vona
g
e World plan since its introduction in Au
g
ust 2009.
V
ona
g
e will continue focusin
g
on attractive se
g
ments withi
n
this market, including the United
S
tates Hispanic and Asian
-
Indian populations, which represent a signi
f
icant consumer
o
pportunity. We may also o
ff
er plans tar
g
eted to speci
f
i
c
c
ountries or regions where we believe we can offer service
s
wi
t
h
a compe
lli
ng customer va
l
ue propos
i
t
i
on an
d
ac
hi
eve
a
ttractive mar
g
ins
.
2
VO
NA
G
E ANN
U
AL REP
O
RT 2010